FINAL TOPIC
 Article 1763 (Liability of common carrier for willful
act/negligence of co-passenger/stranger)
Common carrier is liable for injuries of its passenger
caused by the willful act or negligence of co-
passenger or stranger – PROVIDED: The employees
of the common carrier if only have observed
diligence of good father of a family (ordinary
diligence) could have prevented or stopped such
willful act/negligence
1. Common carrier not liable for the willful
act/negligence of co-passenger/stranger
(a) Pilapil vs. Court of Appeals, GR No. 52159,
December 22, 1989 (p. 134)
Facts: Bus (common carrier) was travelling
along the highway when a stranger
(bystander along the highway) hurled stone
against the bus and injured the passenger
Issue No. 1: When injury/death caused by a
stranger, what degree of diligence required
of the common carrier in
preventing/stopping injury/death to its
passengers?
Held: Diligence of a good father of a family
(ordinary diligence)
Issue No. 2: The injured passenger alleged
that the common carrier should have
installed grills on the windows in order to
prevent injuries to its passengers caused by
a stranger who hurled stone – rule on this
argument
Held: Passenger is not correct. In this case,
remember that the only degree of
diligence required for willful/negligent act
of stranger is only diligence of a good
father of a family – with such mere
ordinary diligence required, to require the
common carrier to install grills on windows
would be unreasonable as such demand
would put the common carrier as absolute
insurer of the safety of passenger from
willful act/negligence of strangers
Issue No. 3:The common carrier by
exercising diligence of good father of a
family to prevent injury/death of passenger
through willful act/negligence of co-
passenger/stranger, in what way then that
the common carrier could have remiss from
such ordinary diligence in order to make it
liable to its injured/deceased passenger?
Held: When the common carrier
notwithstanding it has control, knowledge
or capacity to prevent such
willful/negligent act of co-
passenger/stranger – but did nothing, then
the common carrier is liable(Example:
When despite knowledge of the common
carrier that in such particular highway, it is
known to be notorious hurling of stone
against travelling vehicles – it did nothing
to protect its passengers – such as avoiding
such highway and take instead another
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safe route if there be any, or if no
alternative route, by at least putting curtain
on bus windows and advice the passengers
to closed their respective curtains before
approaching such highway)
Opinion: If the sudden act of the passenger
in stabbing a fellow passenger is within the
context of force majeure (not foreseen by
common carrier) (Bachelor Express Inc. vs.
Court of Appeals, GR No. 85691, July 31,
1990), then how much more of the willful
act of a stranger who is outside the
common carrier hurled stone against the
bus – provided such force majeure is not
foreseeable or though foreseeable
nevertheless inevitable?
2. Common carrier liable for the willful
act/negligence of co-passenger/stranger
(a) Fortune Express, Inc. vs. Court of Appeals,
GR No. 119756, March 18, 1999
Principle: An event is not unforeseeable
since the common carrier has been
previously informed/warned of such event
Facts: Common carrier collided with a
jeepney causing injuries to two (2)
Maranaos. The Constabulary conducted
investigation and resulted to an
information that certain Maranaos are
planning to take revenge against the
common carrier by burning some of its
passenger buses. This information was
made known to the management of the
common carrier – but despite such
information, no security measures were
taken by the common carrier. Later, in view
of such lack of security measure, three (3)
armed Maranaos were able to successfully
board one of the buses of the common
carrier. The armed Maranaos seized the bus
and ultimately led to the killing of a
passenger (Atty. Caorong).
Issue No. 1: Did the common carrier
observed of diligence of a good father of a
family in preventing willful act of the
Maranaos who became a co-passengers
causing death to passenger Atty. Caorong?
Held: NO. Despite such information and
warning about the plan of revenge by the
Maranaos, the common carrier did not
impose security measures (e.g., non-
intrusive gadgets such as metal detector) in
determining passengers with deadly
weapons before boarding the bus
Issue No. 2: Whether the act of the armed
Maranaos (co-passenger) is within the
context of force majeure/fortuitous event?
Held: NO. A force majeure/fortuitous event
is when the event causing
injury/death/damage could not be
foreseen, or though foreseeable
nevertheless inevitable. In the case at bar,
the event is foreseeable because of the
 information given by Constabulary to the
management of the common carrier that
certain Maranaos will take revenge against
the common carrier – which should have
caused the common carrier into imposing
security measures to avoid such incident
(Opinion: Had the common carrier did not
receive information about the plan of
revenge by Maranaos, then such incident
could have constituted
majeure”[unforeseeable] provided the act
of the Maranaos is “grave or irresistible
threat, violence or force” [Bachelor Express
Inc. vs. Court of Appeals, GR No. 85691, July
31, 1990])
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CHAPTER 4
DAMAGES for Breach of Contract of Common Carriers
Article 1764 (Damages against common carrier)
Damages in cases comprised in this Section (i.e., Article
1764 to 1766) shall be awarded in accordance with Title
XVIII of this Book concerning damages (i.e., Article 2195
to 2235 [damages referring to – Moral, Exemplary,
Nominal, Temperate, Actual and Liquidated).Article
2206 shall apply to the "death of a passenger” caused
by the “breach” of contract of carriage by a common
carrier
Note: Sources of obligation which common carrier-
employer and driver-employee are liable to
passenger/pedestrian in cases of injury (i.e., three
culpas – culpa contractual [breach of contract] against
common carrier, culpa aquiliana [quasi-delict/tort]
against common carrier or driver, and culpa criminal
[delict/crime] against driver-employee)
1. Article 1764 in relation with Article 2206speaks
about liability for damages for “death” of the
passenger - to wit: (a)“death indemnity” for
P50,000, plus (b) “loss of earning capacity”, plus (c)
“support” for a person who is not called to inherit
from the deceased passenger but shall not exceed 5
years, plus (d) “moral damages” for the heirs of the
deceased passenger
(a) Application of Article 1764 in relation to Article
2206 (Sulpicio Lines Inc. vs. Curso, GR 157009,
March 17, 2010; Philtranco vs. Court of Appeals,
GR No. 161909, April 25, 2012[p. 159])
General rule: Moral damages are not
recoverable in actions for breach of
contract(i.e., all contracts under “ObliCon”) and
in fact Article 2219 where it enumerates right to
recover moral damages does not include moral
damages for breach of contract - EXCEPT:
(a) Article 2220 2nd Sentence NCC: There is
fraud, or bad faith on the part of the
defendant (or gross negligence[Far East
Bank vs. CA, GR 108164, February 23, 1995]
applying Article 2220 2nd Paragraph); or
(b) Under Article 1764 in relation to Article
2206 (3) – i.e., in “breach of contract of
carriage” that resulted to death of
passenger, moral damages is recoverable
even without proof of fraud/bad faith of
the common carrier (but of course, the
common carrier must be proven negligent)
Issue: In breach of contract of carriage of
passenger, suppose the passenger did not die
(but merely injured), can the spouse,
legitimate/illegitimate descendants and
ascendants – still recover moral damages?
Held: NO – because Article 1764 in relation with
Article 2206 requires that the passenger must
“force die– UNLESS: Pursuant to Article 2220 2nd
Sentence, the common carrier in breaching its
contract of carriage of passenger, acted with
fraud/bad faith (gross negligence)
Issue: In breach of contract of carriage of
passenger, suppose the passenger dies, and the
plaintiffs are his brothers and sisters – can they
claim moral damages against the common
carrier?
Held: NO. Article 2206 (3)includes only spouse,
ascendants and descendants, so that it excludes
collateral relatives (inclusio unius est exclusio
alterius)
2. Remedies of injured passenger, or heirs of
deceased passenger
(a) Civil case for “breach of contract of carriage of
passenger”
Against whom filed: Only against the common
carrier, but not against the driver as the
passenger has no contractual relation with him
Burden of proof: After the passenger/heirs
proved existence of contract of carriage plus he
is injured/died – then pursuant to Article 1756,
the common carrier is presumed at
fault/negligent thereby the burden of proof is
now shifted to the common carrier
Quantum of evidence: Preponderance of
evidence
Common carrier proved due diligence in the
S/S of employees (for common carrier to
avoid/limit its civil liability): Common carrier is
still liable for damages (Article 1759), but it is
mitigated (partial defense)
(b) Civil case for “quasi-delict/tort” (i.e., no
contract of carriage)
Against whom filed: Only against the driver
(there being no pre-existing contractual
relation). Not against the common carrier as the
passenger has contract of carriage with it
EXCEPT: In the case of Air France vs.
Carrascoso, GR No. L-21438, September 28,
1966 (p. 143), if the act that breached the
contract (e.g., contract of carriage), would
have itself constituted cause of action for
quasi-delict/tort had no contract existed –
then the contract is said to have been breached
by tort/quasi-delict
Question: Suppose the driver is
negligent/willfully caused injury/death
to passenger (or damage/loss to his
goods), is there possibility that the
passenger/heirs can file quasi-
delict/tort against the common carrier
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 despite existence of contract of
carriage?
Held: YES, if the common carrier in
breaching contract of carriage, also
constitutes tort/quasi-delict (Air France
vs. Carrascoso - applying Human
Relations plus Article 2176 [quasi-delict]
in relation to Article 2180 [vicarious
liability]).Article 20:“Every person (in
this case the driver) who, contrary to
law, willfully or negligently causes
damage to another, shall indemnify the
latter for the same.” Article 2176:
“Whoever (in this case the driver) by act
or omission causes damage to another,
there being fault or negligence, is
obliged to pay for the damage done.
Such fault or negligence, if there is no
pre-existing contractual relation
between the parties, is called a quasi-
delict.”
Question: But this damage/injury/death
under Article 20 and 2176 is caused
only by the driver and not by the
common carrier. How then the common
carrier be liable for damages?
Answer: Article 2180 (Doctrine of
Vicarious Liability): “The obligation
imposed by Article 2176 is demandable
not only for one's own acts or
omissions (i.e., operator of common
carrier), but also for those of persons
for whom one is responsible (i.e.,
operator of common carrier responsible
for the acts of his driver).”
Burden of proof: Against the passenger
Quantum of evidence: Preponderance of
evidence
Common carrier proved due diligence in the
S/S of employees (for common carrier to
avoid/limit its civil liability): Common carrier is
completely exonerated from liability for
damages (complete defense)
(c) Criminal case for “delict/crime”
Against whom filed: Only against the driver for
“reckless imprudence resulting to physical
injuries/homicide”
Question: Could the operator of
common carrier also liable with driver
by way of conspiracy?
Held: NO. “Conspiracy is not the
product of negligence but of
intentionality/dolo on the part of the
cohorts”(Fernandez v. National Labor
Relations Commission, 281 SCRA 423,
Magsuci vs. Sandiganbayan, G.R. No. L-
101545, January 3, 1995 and Nava vs.
National Bureau of Investigation, G.R.
No. 134509, April 12, 2005)
Burden of proof: Always against the
prosecution (Reason: Accused’s presumption of
innocence)
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Quantum of evidence: Beyond reasonable
doubt (moral certainty)
Common carrier proved due diligence in the
S/S of employees(for common carrier to
avoid/limit its civil liability): Never a defense by
the common carrier, either as complete/partial
defense for the exoneration/mitigation of civil
liability for defense – since its civil liability
subsidiary to the driver
Who is liable for civil damages? Driver and not
the operator of common carrier
Question: When can be the operator of
common carrier liable for civil damages
in the criminal case filed against its
driver for “reckless imprudence
resulting to physical injuries/homicide”?
Answer: The operator is subsidiarily
liable in the same criminal action for
the civil damages caused by the driver –
PROVIDED: The passenger/heirs proves
the following requisites:(1) driver is
convicted with finality, (2)
passenger/heirs file Motion[litigated
motion, hence notice of hearing is
required to afford due process to
common carrier] to have the operator
subsidiarily liable, and (3)it is proven in
the Motion that the Sheriff executed
the judgment for civil liability against
the driver, but the driver is
insolvent(Pangonorom vs. People, GR
No. 143380, April 11, 2005)
Question: Can the passenger/heirs
instead of filing Motion in the same
criminal action against the driver, file a
separate civil action against the
common carrier?
Answer: YES. But this remedy is
circuitous. Hence, it is a better
procedural remedy to file Motion in the
same criminal action to hold the
common carrier subsidiarily liable
(1) Civil action for damages for “quasi-delict”
based on crime “Reckless imprudence
resulting to physical injuries/homicide”- as
independent civil action
When a criminal action is filed, deemed
instituted is the civil aspect for damages –
UNLESS (not deemed instituted): (1) the
private complainant waived his right to file
civil action against the accused, or (2) (no
waiver but) he reserved his right to file a
civil case against the accused in a separate
civil action - which reservation must be
made before the prosecution starts
presenting evidence, or (3) the private
complainant already instituted the civil
action ahead to the criminal action
Question: Is civil action for damages for
“quasi-delict” against the driver based on
crime “Reckless imprudence resulting to
 physical injuries/homicide” - as
independent civil action?
Answer: YES. Rule 111, Section 3 ROCP
provides that Articles 32, 33, 34 and 2176
(quasi-delict) of the Civil Code, the
independent civil action may be brought by
the offended party, and shall proceed
independently of the criminal action which
requires only a preponderance of evidence
– HOWEVER: The offended party cannot
recover civil damages twice- one in the
criminal action for “reckless imprudence”
and another in the civil action for “quasi-
delict”
Question: Suppose in the criminal case for
“reckless imprudence resulting to physical
injuries/death,” the private complainant did
not reserve to file a separate civil action in
the same criminal action before prosecution
starts presenting evidence, can the private
complainant still file a separate civil action
for quasi-delict against the action?
Answer: YES. Because Rule 111, Section 3
ROCP provides that action under Article
2176 (quasi-delict) is an independent civil
action. To require independent civil to be
reserved in the criminal action, would
frustrate the true intent of the law that
quasi-delicts are independent civil action
Question: Pending the criminal action for
“reckless imprudence resulting to physical
injuries/homicide”, can the subsequent
filing of a separate civil action for quasi-
delict suspends the criminal action on
ground of prejudicial question?
Held: NO. First, Article 33 NCC provides that
civil actions for “quasi-delict” is an
“independent civil action "and likewise Rule
111, Section 3 ROCP provides that
independent civil action shall proceed
independently of the criminal action and
shall require only preponderance of
evidence(vis-à-vis proof beyond reasonable
doubt in criminal cases). Now, to suspend
the criminal action would thereby run
against the provision that civil action/Rules
that independent civil action shall proceed
independently of the criminal action and
not to mention also that their respective
quantum of evidence are different (Jose-
Consing, Jr. vs. People, G.R. No. 161075, July
15, 2013)
3. Moral damages
(a) Moral damages - defined (Article 2217 NCC)
Moral damages include physical suffering,
mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar
injury. Though incapable of pecuniary
computation, moral damages may be
recovered if they are the proximate result of
the defendant's wrongful act or omission
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(b) How much is the moral damages
Proportionate to the suffering inflicted
(Lambert vs. Heirs of Ray Castillon, GR No.
160709, February 23, 2005)
(c) Liable for moral damages for “gross
negligence”
(1) Baliwag Transit, Inc. vs. Court of Appeals,
GR No. 116110, May 15, 1996 (p. 163)
Facts: The passenger bus driver was driving
at an inordinately fast speed that it failed
to notice a cargo truck parked along the
shoulder of the highway with kerosene
lamp sufficiently serving as warning device
– injuring the bus passengers (i.e.,
passengers did not die)
Issue: We know that pursuant to Article
1764 in relation to Article 2206 (3) NCC that
the heirs of deceased passenger can claim
moral damages. But the question is,
supposed the passenger did not die but
merely injured, can the passenger claim for
moral damages against the passenger bus?
Held: General rule NO, because as
mentioned, moral damages is not
recoverable for breach of contract such as
breach of contract of carriage – UNLESS:
The common carrier is grossly negligence.
In the case at bar, the driver driving at
exceedingly fast speed is gross negligence
Question: What quantum of evidence that
the injured passenger must prove to show
that the common carrier breached its
contract of carriage by gross negligence?
Answer: Because goods faith is presumed,
the injured passenger must prove gross
negligence against the common carrier by
clear and convincing evidence
Opinion: If the passenger dies, even if
common carrier was not proven to be in
gross negligence, still the common carrier is
liable for moral damages in view of Article
1764in relation to Article 2206 (3) providing
that in case of death of passenger, the
common carrier is liable for moral
damages – EXCEPT: When the passenger is
guilty of contributory negligence
(Philippine National Railways vs. Court of
Appeals, GR No. L-55347, October 4, 1985;
p. 173)
(2) Trans-Asia Shipping Lines, Inc. vs. Court of
Appeals, GR No. 118126, March 4, 1996 (p.
166)
Held: The passenger vessel by taking its
voyage despite its full awareness of being
unseaworthy that only one engine was
functioning, is a breach of contract of
carriage by gross negligence (Note: Also
made liable for exemplary damages)
(3) Singson vs. Court of Appeals, GR No.
119995, November 18, 1995 (p. 168)
Facts: Passenger bought six (6) open-dated
flight tickets from airline (common carrier) –
 constituting 6-leg flights from Manila to
Hongkong, then to San Francisco, then to
Los Angeles - then from Los Angeles back to
San Francisco, then back to Hongkong, then
back to Manila – such that each flight leg,
the corresponding ticket number shall be
removed from the ticket booklet of the
passenger. For negligence of the airline’s
employee, there was a mistake in removing
the ticket number in their sequential order
that made the passenger delayed in his
flight from Los Angeles back all the way to
Manila because the airline refused to board
him. The airline ticketing agent in Hongkong
informed the airline ticketing in Los Angeles
that there was a mistake in the sequential
removing from the 6 tickets of the
passenger – yet the airline refused to board
the passenger.
Issue: Is the airline liable for moral
damages?
Held: YES. This negligence of the airline
employee in not sequentially removing
ticket from the ticket booklet of the
passenger, compounded by refusal of
airline to board the passenger despite
already informed by its own ticketing agent
in Hongkong admitting fault that it was
mistaken in not removing tickets
sequentially, that led to the delay of the
passenger in going back to Manila – amount
of gross negligence (Note: The airline was
also made liable for exemplary damages)
(d) Liability for moral damages under “Article
2219 NCC”
(1) Article 2219 NCC: Moral damages may be
recovered in the following and analogous
cases:
(1) A criminal offense resulting in physical
injuries (e.g., reckless imprudence
resulting to homicide/physical injuries)
(2) Quasi-delicts causing physical injuries
(e.g., pedestrian injured by a
vehicle)
xxx
(10) Acts and actions referred to in Articles
21, 26, 27, 28, 29, 30, 32, 34, and
35
Note: Article 2219 does not include
recovery for moral damages for breached of
contract. Now, as mentioned, there are
three exceptions where moral damages is
recoverable for breach of contract – i.e., in
breaching contract [such as contract of
carriage],(1) the defendant committed
fraud, or (2) the defendant committed bad
faith/gross negligence, or (3) In case of
death of passenger pursuant to Article 1764
in relation to Article 2206 (3) – except when
the passenger is guilty of contributory
negligence (Philippine National Railways vs.
5
Court of Appeals, GR No. L-55347, October
4, 1985; p. 173)
(2) Philippine Airlines, Inc. vs. Court of
Appeals, GR No. 120262, July 17, 1997 (p.
155)
Facts: The passenger boarded the airline
from Manila and disembarked in Cebu City
where he was supposed to take connecting
flight to Surigao City. However, while in
Cebu City, his connecting flight to Surigao
City was cancelled due to fortuitous event
(typhoon). By way goodwill, the airline gave
P100/200 per day to its passengers while in
Cebu City, however, the passenger instead
requested from airline that he be billeted
(accommodated) in a hotel at airline’s
expense as he did not have cash with him
that time, but it was refused by the airline -
hence, he was forced seek the help from his
co-passenger where the latter took him as
roommate in a certain hotel. When later
the passenger reached Surigao City, he
learned that there were some of his co-
passengers were allowed by the airline to
stay in a hotel while in Cebu City at their
own expense in the meantime subject for
reimbursement by the airline which
accommodation was kept secret by the
airline from the passenger
Issue: Is the airline liable for moral
damages to the passenger?
Held: YES. Granting that the passenger
have no vested right to such amenities
(billeted hotel accommodations) in case
flight cancelled due to fortuitous
event/force majeure – NEVERTHELESS: The
discriminatory act of the airline company
by accommodating hotel expenses of other
passengers except the passenger violates
Article 2219 (10) where moral damages is
recoverable where there is violation of
Article 21 (“Any person who willfully causes
loss or injury to another in a manner that is
contrary to morals, good customs or public
policy shall be liable for damages”)
ALSO (opinion): There is liability for moral
damages when there is fraud. In the case at
bar, the common carrier committed fraud
when it kept secret from the passenger the
fact that the common carrier
accommodated the hotel of other
passengers while denying the same from
the said passenger
Note: The common carrier was also held
liable for actual damages for expenses of
passenger while stranded in Cebu City and
exemplary damages
(e) Moral damages – not recoverable when
passenger committed contributory negligence
(1) Philippine National Railways vs. Court of
Appeals, GR No. L-55347, October 4, 1985
(p. 173)
Facts: The passenger train (PNR) was
overcrowded that made the passenger sit
on the open platforms between the train
coaches. The train did not slow down when
it was approaching a bridge under repair
that led to the falling of the passenger –
and despite the call of other passengers
that a certain passenger fell off, the train
did not stop. The passenger died
Issue No1: Can the PNR (GOCC) invoke
immunity from suit?
Held: NO. PNR is created under its own
charter Republic Act 4156, as amended
where therein provided “Generally, to
exercise all powers of a corporation
created under the Corporation Law” –
hence, PNR has all the characteristics and
attributes of a private corporation created
under the Corporation Law (viz., PNR is
deemed as if a private corporation). The
PNR being deemed as if a private
corporation, PNR can therefore sue and be
sued just like any private corporation.
Moreover, granting for the sake of
argument that the PNR is not GOCC but as
government agency, however, when the
government agency exercising proprietary
function (engaged in business; e.g.,
collecting passenger fares just like PNR) and
not governmental function, then it enters
into commercial business and thereby
abandons its sovereign capacity and is to
be treated like a private corporation
Issue No 2:Considering that PNR (GOCC)
cannot invoke immunity from suit in view
of its charter (i.e., RA 4156)which provides
that it can exercise powers of corporation
created under the Corporation Law –the
question is, can it nonetheless invoke non-
liability since its funds are public funds
(suability is different from liability)?
Held: NO. PNR being a GOCC engaged in
proprietary function akin to business
conducted by private corporations, and
that being GOCC having personality
separate and distinct from the Government
– it cannot therefore invoke non-liability
Issue No. 3: Is PNR guilty of negligence?
Held: YES. Article 1756 provides that when
passenger is injured/died, the common
carrier is presumed at fault/negligent. The
PNR was not able to refute this
presumption considering the proven
evidence of negligence when it did not slow
down despite approaching slow bridge then
under repair, all the more negligent when it
did not stop when other passengers were
shouting that the passenger fell off the train
Issue No. 4: Is the passenger guilty of
contributory negligence – i.e., passenger
contributed to the negligence of the PNR?
6
Held: YES. The passenger is equally guilty of
contributory negligence by opting to sit on
the open platform between train coaches,
which on that situation, the passenger
should have entertained danger to himself,
and with that, he should have held tightly
on the metal bar in order to avoid falling
off(Note: Article 1761: Passenger must
observe the diligence of a good father of a
family to avoid injury to himself)
Issue No5:Is the PNR liable for moral
damages?
Held: NO. While PNR is liable for damages
(i.e., death indemnity for passenger’s death
[Article 1764 in relation to Article 2206],
and actual damages for loss of earning
capacity) – nevertheless, it is not liable for
moral damages since the passenger is also
guilty of contributory negligence
Note: When no moral damages, no
exemplary damages
(2) Lambert vs. Heirs of Ray Castillon, GR No.
160709, February 23, 2005
Facts: Motorcycle driver after taking
one/two bottles of beer, drove his
motorcycle at high speed without wearing
helmet and was following closely the
jeepney (tailgating). While travelling, the
jeepney driver slightly veered to his right
for him to have space allowance for him to
park on the road shoulder and then the
motorcycle veered to the left (to pass the
jeepney) but it was also at that moment
when jeepney driver made immediate
sharp left turn to make the final parking –
that resulted the motorcycle driver bumped
the side of the jeepney that led to his
death. The heirs of M/C driver filed civil
action for quasi-delict against the jeepney
Issue No. 1: Is the jeepney negligent?
Held: YES - by suddenly making abrupt
sharp left turn without first verifying his
right of way (i.e., without first verifying on
its side mirror), makes the jeepney
negligent.
Issue No. 2: Is there contributory
negligence on the part of the M/C driver?
Held: YES. Article 2179 reads “When the
plaintiff’s negligence was the immediate
and proximate cause of his injury, he
cannot recover damages. But if his
negligence was only contributory, the
immediate and proximate cause of the
injury being the defendant’s negligence,
the plaintiff may recover damages, but
mitigated.” Now, in the case at bar, the
immediate and proximate cause of the
death of the M/C driver is that of the
negligent of the jeepney. As to findings of
contributory negligence of the M/C driver,
consists of (1) driving the motorcycle at a
high speed;(2)tailgating closely the
 jeepney; (3)consumed one or two bottles
of beer; and (4) was not wearing a
protective helmet
Issue No. 3: If the immediate and proximate
cause of the death of M/C is because of the
negligent of the jeepney, how much then is
the latter liable for damages?
Held: Jeepney is liable for damages it
actually caused. In contributory negligence,
the defendant is liable only for the
damages actually caused by his negligence
– hence, the determination of amount of
damages varies depending on the
circumstances of each case.
Issue No. 4: Is the jeepney liable for moral
damages?
Held: YES. Remember that the case filed by
the heirs of M/C driver against the jeepney
is quasi-delict. Now, under Article
2206provides that the amount of damages
for death caused by a crime or “QUASI-
DELICT” shall be at least  P50T, even if there
may have been mitigating circumstances. In
addition: Article 2206 (3)provides that the
spouse, legitimate and illegitimate
descendants and ascendants of the
deceased may demand moral damages for
mental anguish by reason of the death of
the deceased
Issue No. 5:How much is the moral
damages?
Held: Must be proportionate to the
suffering/pain inflicted (upon the heirs of
the deceased M/C driver), the intensity of
affection for the deceased M/C driver - and
such amount of moral damages bears no
relation whatsoever with the wealth or
means of the offender
(3) Similarities and difference between
Philippine National Railways vs. Court of
Appeals (supra ) and Lambert vs. Heirs of
Ray Castillon (supra) – insofar as the award
of moral damages when there is
contributory negligence is concerned
(a) Similarities: In both cases the victim are
found to have committed “contributory
negligence”, and the victims died
Also: In both cases Philippine National
Railways vs. Court of Appeals (supra),
death indemnity for passenger’s death
was awarded pursuant Article 1764 in
relation to Article 2206], and also actual
damages for loss of earning capacity –
WHILE: In Lambert vs. Heirs of Ray
Castillon (supra),the jeepney was also
made liable for death indemnity
pursuant to Article 2206 for death
under quasi-delict - AND ALSO:
Pursuant to Article 2206 (1) for death
under quasi-delict, the jeepney was
liable for actual damages particularly
loss of earning capacity
7
(b) Difference: Philippine National
Railways vs. Court of Appeals (supra),
the cause of action “Breach of Contract
of Carriage” and moral damages not
awarded because of the contributory
negligence of the passenger–WHILE: In
Lambert vs. Heirs of Ray Castillon
(supra), the cause of action is “quasi-
delict” and moral damages awarded
even if the passenger committed
contributory negligence
(f) Summary for liability for MORAL DAMAGES
(1) Moral damages in case of civil action for
BREACH OF CONTRACT OF CARRIAGE
(a) Where passenger DIES under breach of
contract of carriage
Moral damages recoverable – even
without proof of fraud, bad faith/gross
negligence. Reason: Article 1764 in
relation to Article 2206 [3])
Except: Passenger is also guilty of
contributory negligence (Philippine
National Railways vs. Court of Appeals,
GR No. L-55347, October 4, 1985;p. 173)
(b) Where passenger DID NOT DIE (i.e.,
merely injured) under breach of
contract of carriage
General rule: Moral damages is not
recoverable for breach of contract
(such as contract of carriage) – UNLESS:
There is fraud or bad faith/gross
negligence (Article 2220 2nd Sentence
NCC; Sulpicio Lines Inc. vs. Curso, GR
157009, March 17, 2010; Philtranco vs.
Court of Appeals, GR No. 161909, April
25, 2012[p. 159]) – which fraud or bad
faith/gross negligence must be proven
by injured passenger by clear and
convincing evidence since good faith is
presumed
Please analyze this: When a common
carrier is negligent but the deceased
passenger is also guilty of contributory
negligence– then the common carrier is
not liable for moral damages (Philippine
National Railways vs. Court of Appeals,
GR No. L-55347, October 4, 1985;p. 173)
– then all the more, moral damages is
not recoverable when the passenger
did not die and also guilty of
contributory negligence. But the
question is: Suppose the passenger did
not die and guilty of contributory
negligence, however, the common
carrier is guilty of fraud, bad faith or
gross negligence, should the common
carrier liable for moral damages
pursuant to Article 2220 2nd Sentence
NCC?
(c) Damage/loss to property- under
breach of contract of carriage
 Article 2220 2nd Sentence: Moral
damages is recoverable – provided the
defendant acted by fraud or bad faith
(gross negligence) proven by clear and
convincing evidence since good faith is
presumed
(2) Moral damages in case of civil action for
QUASI-DELICT (no pre-existing contractual
relation)
(a) Resulting to death under quasi-delict
Moral damages is recoverable. Article
2206:The amount of damages for death
caused by a crime or quasi-delict shall
be at least  P50T, even though there
may have been mitigating
circumstances. In addition (Article 2206
[3]):The spouse, legitimate and
illegitimate descendants and
ascendants of the deceased may
demand moral damages for mental
anguish by reason of the death of the
deceased (Lambert vs. Heirs of Ray
Castillon, GR No. 160709, February 23,
2005).
Note: In Lambert vs. Heirs of Ray
Castillon (supra), when the cause of
action is “quasi-delict,” moral damages
recoverable even if the deceased
passenger committed contributory
negligence
(b) Resulting to physical injuries (e.g.,
pedestrian/other driver or person or
passenger) under quasi-delict
Moral damages recoverable (Article
2219 [2]) – provided the moral
sufferings is the proximate cause of the
act/omission of the defendant
Note: For moral damages under Article
2219, the moral suffering must be
proximate cause of
act/omission/negligence of the
defendant (Mendoza vs. Gomez, GR
160110, June18, 2014)
(c) Resulting to damage/loss to property
under quasi-delict(e.g., defendant
damaging goods/vehicle of another)
Moral damages is recoverable –
provided the defendant acted in fraud
or bad faith/gross negligence proven
by clear and convincing evidence since
good faith is presumed(Ace Haulers
Corp. vs. Court of Appeals, GR 127934,
august 23, 2004)
(3) Moral damages in case of civil action based
on Human relation particularly Articles 21,
26, 27, 28, 29, 30, 32, 34, and 35 (Article
2219 [10])
Moral damages recoverable – provided the
moral suffering is the proximate cause of
the act/omission of the defendant
(California Clothing Inc. vs. Ybañez, GR
175822, October 23, 2013)
8
Note: For moral damages under Article
2219, the moral suffering must be
proximate cause of act/omission of the
defendant (Mendoza vs. Gomez, GR
160110, June 18, 2014)
(4) Moral damages in case of criminal action
(a) Resulting to death (whether intentional
crime or criminal negligence [e.g.,
reckless imprudence resulting to
physical injuries/homicide])
Moral damages is recoverable. Article
2206:The amount of damages for death
caused by a crime or quasi-delict shall
be at least  P50T, even though there
may have been mitigating
circumstances. In addition (Article 2206
[3]):In death caused by crime (or quasi-
delict), the spouse, legitimate and
illegitimate descendants and
ascendants of the deceased may
demand moral damages for mental
anguish by reason of the death of the
deceased (Lambert vs. Heirs of Ray
Castillon, GR No. 160709, February 23,
2005)
Note: Even if the deceased-victim
committed contributory negligence,
the accused is still liable for moral
damages (Lambert vs. Heirs of Ray
Castillon, GR No. 160709, February 23,
2005)
(b) Resulting to physical injuries (whether
intentional or criminal negligence [e.g.,
reckless imprudence resulting to
physical injuries])
(1) Intentional crime
Moral damages recoverable –
provided the moral sufferings is the
proximate cause of the
act/omission of the defendant
(Article 2219 [1])
Note: For moral damages under
Article 2219, the moral suffering
must be proximate cause of
act/omission of the defendant
(Mendoza vs. Gomez, GR 160110,
June 18, 2014)
(2) Criminal negligence
Moral damages recoverable –
provided the moral sufferings is the
proximate cause of the
act/omission of the defendant
(Article 2219 [1])
Note: For moral damages under
Article 2219, the moral suffering
must be proximate cause of
act/omission of the defendant
(Mendoza vs. Gomez, GR 160110,
June 18, 2014)
4. Exemplary damages
(a) The “amount” of exemplary damages need not
be alleged in the Complaint
 Article 2234: The “amount” of exemplary
damages need not be proved, but exemplary
damages cannot be awarded when the plaintiff
is not entitled to moral, actual damages,
liquidated or (disjunctive)temperate (MALT)–
viz., MALT is a requisite before exemplary
damages can be awarded.
HOWEVER: For the award of liquidated
damages in addition to exemplary damages,
the plaintiff must also be entitled for moral,
actual or temperate damages (Abobon vs.
Abobon, GR 155830, August 15, 2012 citing
Article 2234)
NOW: Considering that “amount” of exemplary
damages need not be proven, it follows that
the “amount” of exemplary damages need not
be pleaded in the complaint because it cannot
be predetermined by the court as such amount
depends on the evidence (i.e., amount depends
on a case to case basis depending on the degree
of negligence, or the degree of necessity to
protect the public so that the incident/event
subject of exemplary damages will no longer
repeated or at least minimize by other
wrongdoers in the future; Singson vs. Aragon,
GR L-5164, January 27, 1953)
NOTE: The basis of exemplary damages is to
imposed it as one of the damages for the
“public good” (so that the incident/event
subject of exemplary damages will no longer
repeated by other wrongdoers in the future or
at least minimize)
(1) While “amount” of exemplary damages
need not be alleged in the Complaint,
should “claim” for exemplary damages be
included in the Complaint?
Generally, YES. The rule is, any claim not
alleged in the Complaint cannot be granted
by the court as this would be violative of
due process.
(a) EXCEPTION: But how about “general
prayer” in the Complaint (i.e., “Other
reliefs just and equitable under the
premises are likewise prayed for”)?
A general prayer “Other reliefs just and
equitable under the premises are
likewise prayed for” is broad enough
"to justify extension of a remedy
different from or together with the
specific prayers – PROVIDED: The “facts
are alleged in the complaint” relevant
to such remedy (e.g., exemplary
remedy),and such relevant facts are
proven(Gutierrez vs. Valiente, GR
166802, July 4, 2008)
(b) Article 2229 NCC (Exemplary Damages):
Exemplary or corrective damages are imposed,
by way of example or correction for the PUBLIC
GOOD - IN ADDITION: To damages for moral,
actual (compensatory), liquidated or
temperate (MALT)
9
HOWEVER: For the award of liquidated
damages in addition to exemplary damages,
the plaintiff must also be entitled for moral,
actual or temperate damages(Abobon vs.
Abobon, GR 155830, August 15, 2012 citing
Article 2234)
Note: Under Article 2235:
Stipulation/agreement waiving/renouncing
exemplary damages is null and void
(c) Article 2230 NCC: In CRIMINAL
ACTION(whether intentional or criminal
negligence [e.g., reckless imprudence resulting
to damage to property/physical
injuries/homicide),exemplary damages where
civil aspect is instituted with the criminal action,
may be imposed – PROVIDED: There is one or
more aggravating circumstances
(1) Exemplary damage under criminal action
for “reckless imprudence resulting to
homicide” (requisite is the existence of
1/more aggravating circumstance)
Facts: A negligent bus driver hit a M/C
driver with backrider that led to their death.
The bus driver left the M/C driver sprawled
on the highway – which is an aggravating
circumstance for failure to lend
assistance/help on the spot(Article 365
Last Paragraph). The bus driver was
charged of “Reckless imprudence resulting
to double homicide” where he was
convicted by final judgment
Held: The accused-bus driver was slapped
with exemplary damages due to existence
of the said aggravating circumstance- in
addition to moral, actual and temperate
damages(Nueva Espana vs. People, GR
163351, June 21, 2005)
(d) Article 2231 NCC: In civil action for QUASI-
DELICT (i.e., no pre-existing contractual
relation; e.g., defendant-driver causing damage
to property or injury/death to pedestrian/other
driver/other passenger),exemplary damages
may be granted if the defendant acted with
gross negligence
(1) Exemplary damage under civil action for
“quasi-delict” (requisite is “gross
negligence”)
Driver running at full speed on a rainy day,
on a slippery road in complete disregard of
the hazards to life and limb of other people
- cannot be said to be acting on anything
less than gross negligence. The frequent
incidence of accidents of this nature caused
by taxi drivers, indeed, demands corrective
measures (“corrective measure/damages”
is other name for exemplary damages; so
that such incident will not be repeated or at
least minimize by other wrongdoers in the
future) - in addition to moral and actual
damages(Prudenciado vs. Alliance
Transport System, Inc., GR No. 33836,
March 16, 1987)
 (2) Exemplary damage under civil action for
“quasi-delict” (requisite is “gross
negligence”)
This is about an uncovered manhole in the
city street where the pedestrian met
accident. Although the Supreme Court
awarded exemplary damages without
express finding of “gross negligence” –
nevertheless, this finding of “gross
negligence” is implied in the texts of the
decision since under Article 2231, in civil
action for quasi-delict, the award of
exemplary damages must be based on the
gross negligence of the defendant- in
addition to moral and actual
damages(Guilatco vs. City of Dagupan, GR
No. 61516, March 21, 1989)
(e) Article 2232 NCC: In civil action for BREACH
OFCONTRACTS (e.g., contract of carriage) and
quasi-contracts (e.g., solution indebiti, or
negotiorum gestio), the court may award
exemplary damages if the defendant acted in a
fraudulent or
wanton/reckless/oppressive/malevolent
manner (i.e., bad faith [equivalent to gross
negligence])
(1) Exemplary damage under civil action for
“breach of contract” (requisite is “gross
negligence”)
Driver of common carrier driving at high
speed at night, caused injury to his
passengers is gross negligence damages
liable for exemplary damages -in addition
to actual damages(Marchan vs. Mendoza,
GR No. L-24471, January 31, 1969)
(2) Exemplary damage under civil action for
“breach of contract” (requisite is “gross
negligence”)
The passenger vessel by taking its voyage
despite its full awareness of being
unseaworthy as only engine was running is
in bad faith(gross negligence) liable for
exemplary damages -in addition to moral
damages(i.e., gross negligence)(Trans-Asia
Shipping Lines, Inc. vs. Court of Appeals, GR
No. 118126, March 4, 1996 [p. 166])
(f) Exemplary damages is generally cannot be
imposed against the employer, but only
against the wrongdoer himself (e.g.,
wrongdoer is the employee-driver of common
carrier, and the employer is the operator of the
common carrier)
(1) Exemplary damages cannot be imposed
against his employer because it is primarily
imposed the wrongdoer himself– unless,
the employer “participated in, previously
authorized or subsequently ratified” such
act of the employee(Rotes vs. Halili, GR No.
L-21203, September 30, 1960; Munsayac vs.
de Lara, GR No. L-21151, June 26, 1968)
FINAL
5. Nominal damages
10
(a) Article 2221 in relation with Article 2222 NCC:
Nominal damages is awarded not due to
plaintiff’s damage/loss – BUT: Awarded when
(1) the right of plaintiff arising from any source
of obligation under Article 1157 (i.e., law,
contract, quasi-contract, crime, quasi-delict) is
violated by the defendant, or (2) his property
right is violated by defendant (HENCE: Proof of
damage/loss is not required but merely proof
that the defendant violated the right of the
plaintiff)
(b) Article 2223 NCC: The adjudication for the
award of nominal damages is a proof that the
right of the plaintiff has been violated by the
defendant – SO THAT: Such violation of right
becomes res judicata particularly
“conclusiveness of judgment” in any future
action between same plaintiff and defendant
other than the present action (viz., insofar as
future action is concerned involving the same
plaintiff and defendant, there is no longer issue
as to the fact that the defendant violated the
right of the plaintiff)
Note: There are two (2) kinds of res judicata –
i.e., “Bar by prior judgment,” ([1] there is
identity of parties [direct or indirect (privies)],
[2] identity of subject matter the cases, [3]
identity of causes of action, and [4] there is final
judgment on the merits in the previous case by
competent court). “Conclusiveness of
judgment,” ([1] there is identity of parties
[direct or indirect (privies)], [2] there is identity
of factual issue[i.e., not identity of causes of
action] and [3] there is final judgment on the
merits by competent court)
(c) REMEMBER: Nominal damages is awarded
when – (1) the plaintiff prayed for
actual/compensatory damages but cannot
proved any amount (e.g., no documents/receipt
to substantiate it) but the plaintiff proved that
his right been violated by the defendant, or (2)
that the plaintiff did not suffer
actual/compensatory damages but the plaintiff
proved that his right been violated by the
defendant, (3) that the plaintiff is not entitled to
actual/compensatory damages but the plaintiff
proved that his right been violated by the
defendant
(d) Nominal damages – allowed or denied
(1) Instances were nominal damages allowed:
(a) In case of trespass upon real property,
there is no material loss/damage on
the part of plaintiff as his property was
merely trespassed – but he must be
awarded with nominal damages for
violation of his right over the property
by defendant
(b) While the passenger is not entitled to
claim actual/compensatory damages
brought about by his personal
expenses while stranded in Japan
because the delay of transportation was
 due to fortuitous event that rendered
the NAIA not safe for take-off and
landing – nevertheless, while stranded
in Japan, the passenger has the right to
be accorded with comfort and
convenience, as in the case at bar, the
common carrier should see to it that
the stranded passenger will be
accommodated for the first available
flight after the NAIA re-opened – for
after all, the contract of carriage still
exists and subsists. This particular right
of the passenger has been violated by
the common carrier when the
passenger was not accommodated to
the first available flight because he was
declassifiedfrom transit passenger to
new passenger/chance passenger,
which declassification caused the
passenger stranded longer in Japan in
violation of the right of the passenger
to be accorded with comfort and
convenience – thereby making the
common carrier liable for nominal
damages (Japan Airlines vs. Court of
Appeals, GR No. 118664, August 7,
1998; p. 110)
(c) While actual/compensatory damages
is disallowed by the court because the
plaintiff was not able to prove any
amount of the same (e.g., no
documents/receipt to substantiate) -
nevertheless, nominal damages was
awarded on reason that it is proven
that the right of the plaintiff been
violated by the defendant (Sumalpong
vs. Court of Appeals, GR No. 123404,
February 26, 1997)
(2) Instances were nominal damages not
allowed:
(a) When actual/compensatory damages
is already awarded, the award of
nominal damages is untenable(Light
Rail Transit Authority vs. Navidad, GR
145804, February 6, 2003)
Facts: Navidad paid his token and
entered the LRT Station, and then stood
on the designated ground platform near
the train tracks where passengers are
ought to be while awaiting for the
arrival of the train – here, there is
already a contract of carriage, hence
Navidad is already a passenger. While
waiting for the arrival of train, the
security guard of the common carrier
fought with Navidad that caused
Navidad fell off the rail track that led to
his death when it so happened that
train was approaching and ran over
Navidad causing his death. The Court of
Appeals awarded heirs of Navidad
11
actual, moral and nominal damages
along with P50T death indemnity
Issue: Is the award of nominal
damages proper?
Held: NO. Nominal damages are
awarded in order that a right of the
plaintiff violated by the defendant is
vindicated/recognized, and not for the
purpose of indemnifying the plaintiff
for any loss/damage suffered by him. It
is an established rule that nominal
damages cannot co-exist with actual
damages (Reason: The award of the
court of the actual damages is already
a recognition that the right of the
Navidad been violated by the common
carrier - hence, there is no more
purpose of awarding nominal
damages).
(b) The award of actual/compensatory
and exemplary damages is by itself a
judicial recognition that the plaintiff’s
right has been violated – therefore, a
further award for nominal damages is
unnecessary and improper (i.e.,
redundant)(Meding vs. Cresencia, GR
No. L-8194, July 11, 1956)
6. Temperate (or moderate) damages (Articles 2224 o
2225)
(a) Article 2224: Temperate damages is more than
nominal but less than actual damages – and it is
recoverable when it is proven that some
pecuniary loss has been suffered by the
plaintiff, however, its amount cannot be
proven with certainty
HOWEVER (Article2225): In every case,
temperate damages must be reasonable
depending on the attending circumstances
(b) What is then the difference between nominal
damage and temperate damage?
Nominal damage is awarded when the plaintiff
not at all able to prove any amount of
actual/compensatory damages that he actually
suffered but able to prove that his right has
been violated by the defendant – WHILE:
Temperate damage is awarded when the
plaintiff was able to prove that he actually
suffered actual damage but he was not able to
prove such amount with certainty
(c) Abella vs. People, GR 198400, October 7, 2013
As to the civil liability of the petitioner, the CA
was correct in deleting the payment of the
actual damages awarded by the trial court in
the absence of proof thereof. Where the
amount of actual damages cannot be
determined (with certainty) because of the
absence of supporting receipts - but
entitlement for actual damages is shown by
the facts of the case, temperate damages may
be awarded - i.e., Benigno certainly suffered
injuries, was actually hospitalized and
 underwent medical treatment. x x x award
temperate damages in the amount
of  P25,000.00, in lieu of actual damages.
7. Actual or compensatory damages (Articles 2199 to
2215)
(a) Compensatory or actual damages consists of
the following: (1) actual loss/damage, including
unrealized profits, (2) interests, (3)
consequential damages [e.g., medical and
hospitalization expenses], (4) death indemnity
for at least P50T, (5) loss of earning capacity, (6)
Attorney’s fee
Now, in order that actual damages is awarded,
there are two (2) requisites – (1)the plaintiff
able to prove the amount of actual damages
with certainty, and (2) there must be in the
body of the Decision/Judgment the factual
basis on the amount of actual damages
(b) Article 2199 NCC (compensatory damages):
Except as provided by law or by stipulation
(agreement), compensatory damages is
awarded only for such incurred/suffered
pecuniary loss duly proven in court. Such
compensation is referred to as actual or
compensatory damages.
(1) On actual/compensatory damages, it is
required to present the best evidence (e.g.,
original receipts) - and if there be no best
evidence, other best reliable (secondary)
evidence (e.g., photocopy of receipts;
Baliwag Transit, Inc. vs. Court of Appeals,
GR No. 116110, May 15, 1996)
Facts: To prove actual damages, the
passenger presented hospital and medical
receipts amounting to P5,017.74. To show
other medical expenses, it was by the
testimony alone of the passenger without
corroboration by presenting receipts or
testimony of other witness(es). After trial,
the lower court awarded P25,000, all in all,
i.e., those actual damages where medical
receipts were presented and those other
actual damages where no medical receipts
presented but through testimony of the
plaintiff alone uncorroborated by testimony
of other witness(es).
Issue: Was the award o P25,000 for actual
damages proper?
Held: NO. The award for actual damages
insofar as in excess of P5,017.74 (i.e.,
medical receipts) is concerned, is not
supported by reliable evidence. To prove
actual damages, the best evidence
available to the injured party must be
presented (in this case medical receipts).
The court cannot rely on bare testimony
uncorroborated by other evidence where
the truth of the testimony of witness(es) is
suspected – but rather, must depend upon
competent reliable proof that damages
have been actually suffered. Thus, the
actual damages is reduced to (receipted)
12
medical and hospitalization expenses to
P5,017.74
Note: Rule 130 Section 3 ROC. - Best
evidence: General rule: When “contents” of
document is to be proven in court, no
evidence shall be admissible except the
“original document.” HOWEVER: When
original document cannot be presented,
then “secondary evidence” can be
presented (e.g., photocopy of the original
document, testimony of witness who
personally saw the execution of the
document, etc.)– PROVIDED: It is proven
any of the four (4) exceptions (such as the
original document is loss without fault of
the offeror; or the original document is in
the custody of the adverse-party and the
latter refused to produce the original
document despite reasonable notice from
the offeror, etc.)
(c) Interests
In the case of Abella vs. Abella, GR 195166,
July 8, 2015:
(1) Article 1956: No interest shall be due unless
it has been expressly stipulated in writing
(but legal interest will be awarded to begin
from extrajudicial/judicial demand until
finality of the decision and until its
execution)
Note: Same rule applies when obligation
consists of loan with stipulated written
interest but such interest is not specified
(Note: Since July 1, 2013, the legal interest
shifted from 12% per annum t 6% per
annum)
(2) When obligation consists of loan with
stipulated written “specific” interest – and
such stipulated specific interest continue
until obligation is judicially demanded (i.e.,
filing of civil action in court) – and after
such judicial demand, legal interest (6%
per annum) shall begin to run until the case
is decided in its final and executory stage
and until obligation it is fulfilled/executed
Note: 5% monthly interest, whether
compounded or simple, is unconscionable
(Albos vs. Embisan, GR 210831, November 26,
2014)
(d) Loss of earning capacity
(1) Loss of earning capacity in case of death of
passenger under “breach of contract of
carriage”
Article 1764 (Damages against common
carrier): X x x. Article 2206 shall also apply
to the DEATH of a PASSENGER caused by
the breach of contract of carriage by a
common carrier. And under Article 2206
(1): For death indemnity in the amount of
at least P50T, and in addition, defendant is
liable for the loss of the earning capacity of
the deceased, x x x; unless the deceased on
account of permanent physical disability
not caused by the defendant, had no
earning capacity at the time of his death
(a) Formula for the computation of “loss of
earning capacity” in case of death
(People vs. Punzalan, Jr., GR No.
199892, December 10, 2012; Note: The
formula applies even if the deceased is
not a passenger)
Loss earning capacity = Life Expectancy
x Net income
Life expectancy = 2/3x (80 - age at the
time of death)
Net income = Gross Annual Income
[GAI] - Living Expenses [50% GAI](Note:
The net earning is ordinarily but not
absolute computed at 50% of the gross
earnings [GAI];Lambert vs. Heirs of Ray
Castillon, GR No. 160709, February 23,
2005)
(1) Is the formula also applicable to
death under “crime” or “quasi-
delict”?
YES
(b) Passenger died while still student under
“breach of contract of carriage”
(Perena vs. Court of Appeals, GR No.
157915, August 29, 2012)
Facts: Aaron a passenger of a school
bus (common carrier) died due to
negligence of the driver. Aaron died at
the age of 15 years.
Issue: Considering that Aaron was still a
student (no job) at the time of his
death, how to compute for his loss of
earning capacity?
Held: The following were adopted:
(1) Aaron begins to earn income not at
the age of 15 years (as he yet
studying that time) but at the age of
21 years (age that Aaron would
have graduated from college and
started working for his own
livelihood)
(2) By Table of Mortality: Life
expectancy = 2/3 x (80 - age at the
time of death)
Note: The “age at the time of
death” must be 21 years old (i.e.,
not 15 years old)
(3) Aaron’s salary would be the
prevailing minimum wage at the
time of death of Aaron (on reason
that the nature of his work and his
salary at the time of his death were
unknown)
Note (SC ruled for more than
minimum wage): People vs. Mayor
Sanchez, GR 121039-45, October
18, 2001: Both Sarmenta
(murdered) and Gomez (murdered)
were senior agriculture students at
UPLB, the country’s leading
13
educational institution in
agriculture. As reasonably
assumed x x x, both victims would
have graduated in due course
(Note: Both would have graduated
in year 1993). x x x. Considering
that Sarmenta and Gomez would
have graduated in due time from a
reputable university, it would not
be unreasonable to assume that in
1993 they would have earned
more than the minimum wage. X x
x, the Court believes that it is fair
and reasonable to fix the monthly
income that the two would have
earned in 1993 at P8,000.00 per
month and their deductible living
and other incidental expenses at
P3,000.00 per month
(4) Include 13th month pay as part of
gross income (since 13th month pay
is mandated by law)
(c) Pedestrian died while receiving monthly
pension under “crime [reckless
imprudence resulting to homicide]”
(Gloria Darrocha de Caliston vs. Court
of Appeals, GR No. L-63135)
Facts: Pedestrian (USVA Pensioner) was
ran over by a passenger bus that led to
her death. The bus driver was convicted
of reckless imprudence resulting to
homicide
Issue: Is the pedestrian entitled for loss
of earning capacity insofar as her
monthly pension is concerned?
Held: YES.   Article 2206 (1):“The
amount of damages for death caused
by a crime or quasi-delict is at least
P50,000, even though there may have
been mitigating circumstances. In
addition: (1) Defendant is liable for the
loss of the earning capacity of the
deceased.” Now, the pension of the
decedent-pedestrian being a sure
income that was cut short by her death
for which bus driver of the common
carrier was responsible, the surviving
heir of the former is entitled to the
award of P 10,000.00 which is just
equivalent to the pension the
decedent would have received for one
year if she did not die.
Note: Why only one year loss of earning
capacity? Probably, the pedestrian was
already ____ years old at the time of
her death (i.e., 2/3 [Life expectancy = 80
– age at the time of death])
(d) Loss of earning capacity of a deceased
“self-employed”
When the evidence to prove
daily/monthly income is purely by
testimony of the heirs of the deceased
 estimating such income as self-
employed – is not enough without
corroborating evidence such as income
tax returns or receipts (or other
evidence)
(2) Liability for “Loss of earning capacity” in
case of physical injury of plaintiff under
“breach of contract of carriage”
Article 2205: Damages may be recovered:
(1) For loss/impairment of earning
capacity in cases plaintiff’s personal injury
(temporary/permanent injury);(2) x x x.
(a) Passenger injured while still student
(Cariaga vs. Laguna Tayabas Bus Co.,
GR No. L-11037, December 29, 1960)
Facts: The passenger was a UST 4th year
medical student at the time of the
accident – which accident caused him
permanent physical disability that
rendered him to stop from his study.
Issue: Could it be assumed that the
passenger would pass his board
examination – hence, the passenger is
entitled to loss of earning capacity?
Held: YES. At that time he was already
a fourth-year student in medicine in a
reputable university (University of Sto.
Tomas). While his scholastic may not be
first rate (Exhibits 4, 4-A to 4-C), it is,
nevertheless, sufficient to justify the
assumption that he could have passed
the board test in due time (Note: In this
case, the Supreme Court awarded the
passenger P25,000 as loss of earning
capacity)
(3) Formulas for the computation of “loss of
earning capacity” in case of physical
injuries (hence, living)
Loss of earning capacity = Duration of
earning impairment/loss x gross income
Question: Why “gross income” and not “net
income”?
Answer: Considering that the plaintiff is
living, he himself takes care of own living
expenses
(a) Baliwag Transit, Inc. vs. Court of
Appeals, GR No. 116110, May 15, 1996
Principle: In computing for loss of
earning capacity of “living injured”
plaintiff, the living expenses is not
deductible from gross income
Facts: The passenger suffered fracture
on her pelvis and right leg, and it would
take her to recover for five (5) years,
which recovery period deters her from
continuing on his job. Before the
accident, the passenger was earning
P5,000 per month
Issue: How much is the loss of earnings
of the passenger?
Held: P5,000 (wage per month) x 5
years (of recovery) =P300,000
14
(b) Attorney’s fee
(1) Article 2208 NCC: In the absence of
stipulation/agreement, attorney's fees and
expenses of litigation, other than judicial costs,
cannot be recovered - EXCEPT:
(1) When exemplary damages are awarded
(2) When the defendant's act or omission has
compelled the plaintiff to litigate with third
persons or to incur expenses to protect his
interest
(3) X xx
(4) X xx
(5) Where the defendant acted in gross and
evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and
demandable claim
(6) X xx
(7) X xx
(8) X xx
(9) In a separate civil action to recover civil
liability arising from a crime
(10) X xx
(11) In any other case where the court deems
it just and equitable that attorney's fees
and expenses of litigation should be
recovered
HOWEVER: Attorney's fees and expenses of
litigation must be reasonable
(2) How to prove attorney’s fee
(1) The award attorney’s fees under Article
2208 demands factual, legal, and equitable
justification. (Philippine National
Construction Corp. vs. APAC Marketing
Corp., GR No. 190957, June 5, 2013)
Attorney’s fee under Article 2208 NCC is not
automatically awarded every time a party
wins a suit, rather it is the exception rather
the general rule - such that it demands
factual, legal, and equitable justification to
bring the award thereof within the
exceptions under Article 2208 NCC (e.g., the
defendant unjustifiably refused to comply
with his obligation)
(3) How much attorney’s fee is to be awarded
Not necessarily proportionate to the amount
actually paid by a litigant to his lawyer –
rather, it must be reasonable at all times
(Article 2208 NCC)(Philippine National
Construction Corp. vs. APAC Marketing Corp.,
GR No. 190957, June 5, 2013)
Note: Attorney’s fee is not to be awarded to the
counsel, but to the client who already paid his
counsel
(4) The “contents” of the Decision in order that
award of attorney’s fee is proper
(a) Philippine National Construction Corp. vs.
APAC Marketing Corp., GR No. 190957,
June 5, 2013
It is imperative that the basis for the award
of “attorney’s fee” be clearly and distinctly
set forth in the “body” Decision – and it is
not enough to merely state in the Decision
 the amount in the dispositive portion of the
Decision.
Reason: The award attorney’s fees under
Article 2208 demands factual, legal, and
equitable justification which must be laid
down in the body of the Decision
(Philippine National Construction Corp. vs.
APAC Marketing Corp. [supra]; Buñing vs.
Santos, GR No. 152544, September 19,
2006)
(5) Article 2208 (2):“When the defendant's act or
omission has compelled the plaintiff (a) to
litigate with third persons (i.e., his lawyer) to
protect his interest, or (b) to incur expenses to
protect his interest”
(a) Philippine National Construction Corp. vs.
APAC Marketing Corp., GR No. 190957,
June 5, 2013
Even when a plaintiff is compelled to
litigate with third persons (i.e., lawyers) or
to incur expenses to protect his rights, still
attorney’s fees may not be awarded- where
the plaintiff not able to prove that the
defendant acted in bad faith in refusing to
comply with his obligation. Hence, when
such refusal of the defendant was due to
honest erroneous belief that he can validly
not comply with his obligation, and the
plaintiff sued him and the plaintiff won, the
defendant cannot be liable for “attorney’s
fee”
(b) Soberano vs. Manila Railroad Co., GR No.
L-19407, November 23, 1966
When the defendant’s failure/refusal to
pay was because of plaintiff’s exorbitant
charge (e.g., exorbitant interest), then
attorney’s fee/cost of suit is untenable
Similarly, when the defendant refused to
enter into amicable settlement because the
plaintiff was “asking too much” - the
defendant has the right to refuse unjust
claim, hence, attorney’s fee/cost of suit is
untenable
(6) Article 2208 (5):“Where the defendant acted in
gross and evident bad faith in refusing to
satisfy the plaintiff's plainly valid, just and
demandable claim”
(1) Defendant’s failure to pay his obligation
“without bad faith” does not warrant
attorney’s fees (Lasedeco vs. Gaston, GR
No. L-8938, October 31, 1956). As a matter
of fact, even defendant’s clearly untenable
defenses would not warrant attorney’s fee
in the absence of gross and evident bad
faith (Jimenez vs. Bucoy, GR No. L-10221,
February 28, 1958)
(2) Defendant’s refusal to pay because the
plaintiff demanded more than what it
should be does not warrant attorney’s fee -
as the defendant has the right to refuse
unjust claim (Globe Assurance Co. vs.
Arcache, GR No. L-12378, May 28, 1958)
15
(7) Article 2208 (9): “In a separate civil action to
recover civil liability arising from a crime”
(1) By deductive reasoning, it seems therefore
when the crime is prosecuted by public
prosecutor where civil liability is instituted
therewith, no attorney’s fee shall be
awarded – since the private complainant
did not pay anything to the public
prosecutor. However, when the civil aspect
is instituted with the criminal action and the
private complainant is represented by a
private prosecutor, then award of
attorney’s fee is proper – since, the private
complainant paid the private prosecutor
(2) Attorney’s fee is up to the date of
judgment, hence, if the judgment is
appealed, then attorney’s fee should
perhaps at least be doubled (Bantoto vs.
Bobis, GR No. L-18966, November 22, 1966)
(8) “In any other case where the court deems it just
and equitable that attorney's fees and expenses
of litigation should be recovered”
(a) Attorney’s fee is warranted the litigation
the litigation ended for 13 years (Batangas
Trans Co. vs. Caguimbal, GR No. L-22985,
January 24 ,1968)
(b) The low income of the plaintiff is
considered under Article 2208 (11), i.e.,
“court deems it just and equitable that
attorney's fees and expenses of litigation
should be recovered”
(9) Pauper litigant-defendant (e.g., PAO client) is
not exempted from paying attorney’s fees paid
by the plaintiff to his counsel
While pauper is exempted from paying court's
legal and other lawful fees – he is not
exempted from paying attorney’s fee paid by
plaintiff to his own lawyer (Cristobal vs.
Employees’ Compensation Commission, GR No.
L-49280, February 26, 1981)
 Article 1765 NCC (Cancelling the certificate of public
convenience of common carrier)
The Public Service Commission may, (1) on its own
motion or (2) on petition of any interested party -
cancel the certificate of public convenience of
common carrier after due hearing that repeatedly
fails to comply its duty to observe extraordinary
diligence
1. The Public Service Commission is already defunct,
and insofar as common carriers concerned, its duty
already assumed by Land Transportation
Franchising and Regulatory Board (LTFRB) insofar as
land common carriers are concerned, CAB insofar as
aircraft carriers are concerned, and MARINA insofar
as sea common carriers are concerned
Article 1766 NCC (Provisions of Civil Code on common
carriers prevail over other laws)
In all matters not regulated by this New Civil Code, the
rights and obligations of common carriers shall be
governed by the Code of Commerce and by special
laws
1. Civil Code provisions on common carrier
Articles 1732 to 1766 NCC. This Civil Code provisions
prevail over other statute - hence, rights and
obligations of common carrier can be governed by
other laws only when Civil Code does not
specifically provide
2. Warsaw Convention
Refers to international carriage by AIR that
regulates liability for international carriage of
persons and goods performed by aircraft
3. Court jurisdiction under the Warsaw Convention
(i.e., Warsaw Convention only applies when the
cause of action is based on “Breach of Contract on
“International” Carriage” [i.e., not contract of
carriage within the Philippines])
(a) Lhuillier vs. British Airways, GR No. 171092,
March 15, 2010
Philippine is a signatory of the Warsaw
Convention and thus has the force and effect of
law in the Philippines.
In the case at bench, petitioner’s place of
departure was United Kingdom while place of
destination was Italy – and both United
Kingdom and Italy are signatories of the
Warsaw Convention. As such, the transport of
the petitioner is deemed to be an "international
carriage" within the contemplation of the
Warsaw Convention – hence, the jurisdiction
over the subject matter of the action is
governed by Warsaw Convention.
Under Article 28(1) Warsaw Convention, the
plaintiff may bring the action for damages
based on “breach of contract of carriage”
before:
(1) Court where carrier is domiciled; or
(2) Court where carrier has its principal
place of business; or
(3) Court where the carrier has
establishment which the contract of
carriage perfected (e.g., where ticket
was issued); or
(4) Court of the place of destination
In this case, the common carrier is a British
corporation domiciled in London UK, also in
London that it has its principal place of
business. Hence, under the first and second
jurisdictional rules, the passenger (Filipino) may
bring her case (breach of contract of carriage)
before the courts of London UK. It appears also
that the ticket was issued in Rome, Italy,
hence, under the third jurisdictional rule, the
passenger also has the option to bring the
action (breach of contract of carriage) before
the courts of Rome in Italy. Finally, the place of
destination is Rome, Italy, accordingly,
passenger may bring her action (breach of
contract of carriage) before the courts of
Rome, Italy. X xx.
X xx.
16
Issue: Can the passenger bring the action for
damages (breach of contract of carriage) in the
court of the Philippines?
Held: NO. In all of the four (4) points of
jurisdiction under the Warsaw Convention
where Philippines is also a signatory thereto,
the Philippines is not one of them. Considering
that the passenger brought the action in the
Philippines, it is DISMISSED for lack of
jurisdiction
4. Under Article 29 of the Warsaw Convention,
provides that the action based ion breached of
contract of carriage must be filed in the country of
jurisdiction within two (2) years(otherwise action is
already prescribed) – AND: The running of the
prescriptive period is absolutely cannot be tolled by
extrajudicial/judicial demand
(a) When the cause of action is based not on
breach of contract of carriage on international
carriage – but breach on other sources of
obligation under Civil Code (i.e., Article 1157
NCC [i.e., law, quasi-contract, delict or quasi-
delict]), then the Warsaw Convention does not
apply (United Airlines vs. Uy, GR 127768,
November 19, 1999; p. 184)
Facts: Airline passenger filed complaint with
RTC-Philippines with two (2) causes of action:
(a) the shabby and humiliating treatment he
received from airline employees at the San
Francisco Airport (destination is Philippines)
which caused him extreme embarrassment and
social humiliation (i.e., tort); and, (b) the loss of
his personal effects amounting to US $5,310.00
(i.e., breach of contract of carriage)
Issue No. 1: Can the passenger bring either of
the said two (2) causes of action in the court of
the Philippines?
Held: YES. On the first action (tort), yes,
because under Article 1157 NCC provides
liability for quasi-delict/tort. On the second
action (breach of contract of carriage), yes also,
because under the four-point jurisdiction of the
Warsaw Convention, an action based on breach
of contract of carriage can be brought in the
place of destination, and Philippines is the
place of destination
Issue No. 2: If the action filed by the passenger
is based on tort, does the two-year prescriptive
period under the Warsaw Convention applies?
Held: NO. Because Warsaw Convention applies
only to action based on international contract
of carriage
Issue No. 2-A: If the Warsaw
Convention does not apply to action
based on tort, then what is the
prescriptive period?
Held: Four year – i.e., Article 1146 NCC:
Action for quasi-delict (tort) must be
brought within four (4) years.
Issue No. 3: If the action filed by the passenger
is based on breach of contract of carriage, does
 the two-year prescriptive period under the
Warsaw Convention applies?
Held: YES. Warsaw Convention applies only to
action based on international contract of
carriage
Issue No. 3-A: If the action brought is
based on breach of contract of
carriage, hence the two-year
prescriptive period under the Warsaw
Convention applies – the question is,
can the two-year prescriptive period be
tolled by extrajudicial/judicial
demand?
Held: NO. Because in the travaux
preparatoire of the Warsaw
Convention, provides that the two-year
prescriptive period is absolutely cannot
be tolled
5. Tort explained (Air France vs. Carrascoso, GR L-
21438, September 28, 1996)
Facts: The passenger (Filipino) was issued a “first
class ticket.” When the airline (common carrier) had
stopover in Thailand, the airline manager requested
the passenger to vacate the first class seat because
a “white man” will occupy the same – and the
passenger replied“ over my dead body.” The airline
manager resisted and a commotion ensured inside
the airline that many Filipino passengers in the
tourist class got nervous, went to the passenger and
pacified him – which the passenger acceded and
consequently, reluctantly surrendered his first class
seat to the white man and instead accepted to
tourist class seat.
Issue No.1: How many civil liabilities that the airline
committed?
Held: Breach of contract of carriage, and quasi-
delict/tort (BUT: The passenger must choose which
cause of action to file - so that if he choose breach
of contract of carriage then WARSAW Convention
applies as it is an international flight, but when he
choose quasi-delict/tort then NCC applies)
Issue No.2: How is it that the airline breached
contract of carriage – and at the same time also
committed quasi-delict/tort?
Held: Although the relation of passenger and airline
is "contractual” both in origin and nature -
nevertheless "the act that breaks the contract may
be also a tort", viz., had there been no contract of
carriage, a quasi-delict/tort would nevertheless
can be filed against the tortfeasor. Examples: (1)
where the common carrier accepted a passenger's
check as payment for fare, it is both breach of
contract and a tort /quasi-delict to falsely notify the
passenger that the check was worthless and
demand payment under threat of ejection, and so
also (2) when the conductor came to collect the
fare of the passenger, the latter told the conductor
to pay only when he reached his destination, here,
there was nothing in the conduct of the passenger
which justified the conductor in using insulting
language to him, as by calling him a lunatic." Now,
in the case at bar, while it is true that the act of the
17
airline manager is forcing the passenger to take a
second class seat is a clear breached of contract of
carriage (i.e., the passenger bought first class
ticket), nevertheless, the airline also committed
tort/quasi-delict when the airline manager did not
mind his duty to treat its passengers with courteous
conduct (i.e., treated with kindness and respect -
protected against personal misconduct, injurious
language, indignities and abuses). In other words,
the act of the airline manager that breaks the
contract is also a tort, such that had there been no
contract of carriage, a quasi-delict/tort would
nevertheless can be filed by the passenger against
the airline. 
Issue No. 3: If the airline manager committed
tort/quasi-delict against the passenger, then why is
it then that the airline be made liable for such
personal act of its employee-airline manager?
Held: Applicable is the “Doctrine of Vicarious
Liability.”
Article 2180 (Doctrine of Vicarious Liability): The
obligation imposed by Article 2176 is demandable
not only for one's own acts or omissions (i.e.,
airline), but also for those of persons for whom one
is responsible (i.e., airline responsible to its
employees [airline manager]).
Issue No. 3-A: What is it that the airline
manager committed tort/quasi-delict against
the passenger - which rendered the airline
vicariously liable thereto?
Held: Article 2176: Whoever by act/omission
through fault/negligence, causes damage to
another, is liable for damages – and if there is
no pre-existing contractual relation, this is
called quasi-delict/tort. Also, Article 21 NCC
(Human Relations): Any person who willfully
causes loss or injury to another in a manner
that is contrary to morals, good customs or
public policy shall compensate the latter for the
damage.
Issue No. 4:What damages therefore the airline
liable for?
Held: They are the following: (1) actual damages
P383 representing the difference for fare between
first class and tourist class ticket, (2) moral
damages (Article 2219 [10] NCC: Moral damages
for act under Human Relations particularly Articles
21), (3) exemplary damages for the act of airline
manager that is wanton, fraudulent, reckless,
oppressive, or malevolent manner constituting the
ejectment of passenger from first class tourist class,
and (4) attorney’s fee as the grant of exemplary
damages justifies grant also for attorneys' fees
CHAPTER 6
Carriage of Goods by Sea Act (Commonwealth Act 65;
COGSA)
Prefatory:
1. COGSA refers to the rights and responsibilities
between shippers and the shipowners (i.e., carrier)
as regards “INTERNATIONAL” carriage of “GOODS
 BY SEA” where “Philippines is the destination”
(Note: Philippines must be the destination because
of Article 1753 NCC providing that the law that
governs regarding carriage of goods is the law of
destination)
HENCE: COGSA does not apply to:
(a) International carriage of PASSENGERS by sea
by common carriers - even if Philippines is the
destination – as COGSA only applies to carriage
by sea of goods. What applies to international
carriage of passengers by sea is the Civil Code
as primary law, and Code of Commerce and
other special laws as suppletory
Note: Warsaw Convention only applies to
international carriage of passengers and goods
by AIR (not by SEA)
(B) DOMESTIC carriage of goods by sea by common
carriers – even if the goods are transported by
the sea within Philippines territory, since COGSA
only applies to international carriage of goods
by sea
AT ANY RATE: In international carriage of goods by
common carrier, Civil Code is still the primary law,
and only in case of its deficiency that COGSA applies
suppletory pursuant to Article 1766 NCC, or that
when both NCC and COGSA have provisions on a
given fact however the provision of COGSA is more
specific than COGSA that makes the latte law
applied (Note: By the way, Warsaw Convention on
international carriage of passengers and goods by
AIR prevails over Civil Code considering that
Philippines is a signatory thereto such that the
primacy of Article 1766 does not apply [this is
implied in the case of Lhuillier vs. British Airways,
GR No. 171092, March 15, 2010 – where our
Supreme Court gives primacy to the provision of
Warsaw Convention over and above our Civil Code
regarding the period of prescription of action and
the suspension of the running of the prescriptive
period])
2. Synopsis of what law governs regarding
international carriage of “GOODS” by SEA
(a) For international “common carrier” for goods
with Philippine port as destination
First: Civil Code. Reason: Article 1766: In all
matters not regulated by this Civil Code
(governing common carriers), the rights and
obligations of common carriers shall be
governed by the Code of Commerce and by
special laws (such as COGSA as suppletory)
Second: COGSA (in the absence of provision of
NCC, or that both NCC and COGSA provide the
law on a given fact however COGSA is more
specific)
Third: Code of Commerce (Reason why COGSA
prevails over Code of Commerce: COGSA is a
special law and while Code of Commerce is a
general law)
(b) For international “private carrier”(i.e., not
common carrier) for goods with Philippine port
as destination
18
First: COGSA (Reason: Article 1766 regarding
primacy of Civil Code refers to common carriers
and not private carriers)
Note: Section 1 (d) COGSA: The term
"ship" means any vessel (whether
common carrier or private carrier) used
for the international carriage of goods
by sea - HOWEVER: NCC is the primary
law over COGSA as regards
international carriage of goods by
common carrier by sea
Second: Code of Commerce (Reason why
COGSA prevails over Code of Commerce:
COGSA is a special law and while Code of
Commerce is a general law)
Third: Civil Code (But only as to its provisions
other than Articles 1732 to 1754, as these
provisions pertains to common carrier)
(c) For common/private carrier with “foreign port
as destination”
Philippine laws does not apply (Reason: Article
1753: Law of destination)
TITLE 1
Section 1. When used in this Act —
(a) The term "carrier" includes the (1) ship owner who
entered into contract with shipper for the
international transport of goods, or (2) the
charterer(who entered into contract with ship
owner regarding the use of the carrier and entered
into contract with shipper for the international
transport of goods)
(b) The term "contract of carriage" applies only to
contracts of carriage covered by a document called
B/L or any similar document of title (purporting to
be a B/L) regarding (international) carriage of
goods by sea, whether such document issued by
shipowner or by the charterer as the case may be -
which document regulates the juridical relations
between a carrier(shipowner or charterer) and a
holder of such document (i.e., the shipper or
consignee)
(c) The term "goods" refer to articles of every kind
whatsoever, except live animals (hence, meat
products included as goods) and cargo which by the
contract of carriage is stated as being carried on
deck and is so actually carried on deck
(d) The term "ship" means any vessel (common carrier
or private carrier) used for the (international)
carriage of goods by sea
(e) The term "carriage of goods" covers the period
from the time when the goods are loaded(on
ship/vessel) up to the time when goods are
unloaded from the ship
RISKS (its coverage)
Section 2. Subject to Section 6, the carrier regarding
loading, handling, stowage (i.e., loading of goods into
the ship/vessel), carriage, custody, care, and discharge
of such goods - shall be subject to the responsibilities
and liabilities and entitled to the rights and immunities
hereinafter set forth
RESPONSIBILITIES AND LIABILITIES
Section 3.  shipper - AND THE:Shipper shall indemnify the
(1) Before and at the beginning of the voyage, the
carrier (shipowner/charterer) shall observe due
diligence on the following —
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
(c) Make the holds, refrigerating and cooling
chambers, and all other parts of the ship in
which goods are carried, fit and safe for their
reception (usage), carriage and preservation
Note: Section 3 (1) COGSA which provides that the
carrier shall only observe due diligence, this is true
only if the carrier is a private carrier – AND NOT:
When the carrier is a common carrier (Reason:
Under Article 1753 provides for the “law of
destination” as bolstered by Section 13 COGSA, and
if Philippines is the law of destination, then apply
Article 1766 which provides for the primacy of Civil
Code regarding common carrier, then by Code of
Commerce and special laws such as COGSA are only
suppletory – HENCE: Under Article 1733 provides
that common carrier are to observe extraordinary
diligence in the transport of goods [Philam
Insurance Co. vs. Heing-A Shipping Corp., GR
187701, July 23, 2014])
(2) The carrier shall properly and carefully load,
handle, stow, carry, keep, care for, and discharge
the goods carried
(3) After the carrier received the goods, on demand of
the shipper, the captain or agent of the carrier shall
issue B/L - stating therein among other things:
(a) The leading marks necessary to identify the
goods which marks furnished (given) in writing
by the shipper before start loading the goods on
the ship, provided such marks are stamped or
otherwise shown clearly upon the goods if
uncovered, or on the cases or coverings in
which such goods are contained, in such a
manner the mark ordinarily remains legible
until the end of the voyage
(b) Either the number of packages or pieces, or the
quantity or weight, as the case may be, as
furnished in writing by the shipper
(c) The apparent (noticeable) order and condition
of the goods: Provided, That no carrier, master,
or agent of the carrier, shall be obliged to write
in the bill of lading any marks, number,
quantity, or weight which he has reasonable
ground for suspecting not accurately to
represent the goods actually received, or which
he has had no reasonable means of checking
(4) Such a B/L shall be prima facie evidence of the
receipt by the carrier of the goods as described in
B/L - in accordance with paragraphs (3) (a), (b), and
(c) of this section (The rest of the provision of this
Section 3 [4] not applicable in the Philippines being
applicable only to U.S.)
19
(5) The shipper shall be deemed to have guaranteed to
the carrier the accuracy at the time of shipment
regarding the marks, number, quantity, and weight
(written in the B/L) as furnished by (given by) by the
carrier against all loss, damages, and expenses
arising or resulting from inaccuracies in such
particulars. The right of the carrier to such
indemnity shall in no way limit his responsibility and
liability under the contract of carriage or to any
person other than the shipper (e.g., consignee;
insurer of shipper in case of subrogation)
(6) (IMPORTANT): Unless notice of (apparent) loss or
damage and the general nature of such loss or
damage on the goods be given in writing (e.g., by
holder of B/L whether the shipper/consignee) to the
carrier or his agent at the port of discharge (of the
goods) before or at the time of the removal of the
goods into the custody of the person entitled to
delivery thereof under the contract of carriage (e.g.,
by holder of B/L whether the shipper/consignee),
such removal shall be “prima facie evidence” of the
delivery by the carrier of the goods as described in
the B/L. If the loss or damage is not apparent, the
(written) notice must be given (e.g., by holder of B/L
whether the shipper/consignee) within three days
of the delivery (to the person entitled to delivery
under the contract of carriage
Said notice of loss or damage of the goods maybe
endorsed (given) upon the receipt for the goods
given by the person taking delivery thereof.
The written notice (of the loss or damage of goods)
need not be given if the state/condition of the
goods has at the time of their receipt (by holder of
B/L whether the shipper/consignee) been the
subject of (i.e., subjected to) joint survey or
inspection (by the holder of B/L and the
representative of the vessel).
(IMPORTANT): In any event the carrier (shipowner
or charterer) and the ship shall be discharged from
ALL liability for loss or damage - UNLESS: Suit
(action for damages) is brought “within one year
after delivery of the goods” or “the date when the
goods should have been delivered” (to the person
entitled for delivery under the contract of carriage
[i.e., the holder of B/L which could be
shipper/consignee]): PROVIDED (IMPORTANT), That
if a written notice of loss or damage, either
apparent or concealed (not apparent), is not given
as provided for in this section, that fact shall not
affect or prejudice the right of the SHIPPER (or
consignee) to bring suit (action for damages) within
one year after the delivery of the goods or the date
when the goods should have been delivered (to the
person entitled to delivery under contract of
carriage whether the shipper/consignee).(Note:
Remember however that when loss/damage of
goods is apparent, and the holder of B/L
(shipper/consignee) received the goods without
giving written notice of loss/damage – then, there
is “prima facie evidence” of the delivery by the
carrier of the goods as described in the B/L)
 In the case of any actual or apprehended loss or
damage the carrier and the receiver shall give all
reasonable facilities to each other for inspecting
and tallying the goods.
(7) After the goods are loaded, the B/L to be issued by
the carrier, master, or agent of the carrier to the
shipper shall, if the shipper so demands, be a
"shipped B/L": PROVIDED, That if the shipper shall
have previously taken up any document of title
(e.g., ordinary B/L [i.e., not “shipped B/L” ]) to such
goods, shipper shall surrender the same for the
issuance of "shipped B/L" – HOWEVER (instead of
surrendering “ordinary B/L” to be substituted with
“shipped B/L”): At the option of the carrier such
document of title(i.e., previously issued “ordinary
B/L”) may be noted (written) at the port of
shipment by the carrier/captain/agent with name
or names of the ship or ships upon which the goods
have been shipped and the date or dates of
shipment, and when so noted (i.e., written on the
previously issued “ordinary B/L”), the same shall
deemed to constitute a "shipped B/L".
Note:“Shipped B/L”: A kind of bill of lading where it
is certified therein that goods been received in
apparent good condition from the shipper, and
been taken aboard on a “named ship on stated
date.” This shipped B/L is required by banks that
funds/pays the shipment fare
(8) Any clause/covenant/agreement in a contract of
carriage “relieving (exempting) the carrier from
liability for loss or damage of goods, arising from
negligence, fault, or failure in the duties and
obligations provided in this section”or “lessening
such liability”contrary to this Act - shall be null and
void (subject to “agreement” under Section 6).
(HOWEVER) A benefit of insurance in favor of the
carrier (stipulated in the contract of carriage) or
similar clause, shall be deemed to be a
clause/agreement relieving the carrier from
liability (hence, the shipper/consignee shall file
action for damages not against the carrier but
instead against the insurer)
RIGHTS AND IMMUNITIES
Section 4.  and privity of the carrier and without the fault
(1) The (common) carrier nor the ship (private carrier)
shall not be liable for loss or damage arising or
resulting from unseaworthiness – UNLESS: (a)
caused by lack of due diligence to make the ship
seaworthy, and (b) to secure that the ship is
properly manned, equipped, and supplied, and (b)
to make to the holds, refrigerating and cool
chambers, and all other parts of the ship in which
goods are carried fit and safe for their reception
(usage), carriage, and preservation,- in accordance
with Section 3 Paragraph 1. Whenever loss or
damage of goods has resulted from
unseaworthiness, the burden of proving the
exercise of due diligence shall be on the carrier or
other persons claiming exemption (e.g., insurer of
carrier) under the section
20
Note: As regards this “due diligence”, this is true
only if the carrier is a private carrier – such that if
the carrier is a common carrier, then what is to be
observed is extraordinary diligence pursuant to
Article 1733 (common carrier to observe
extraordinary diligence) in relation with Article
1753 (law of destination; as bolstered by Section 13
COGSA) and Article 1766 (primacy of Civil Code on
common carrier)
(2) The (common) carrier nor the ship (private carrier)
shall not be liable for loss or damage - arising or
resulting from:
(a) Act, neglect, or default of the captain, mariner,
pilot, or the servants of the carrier in the
navigation or in the management of the ship;
(b) Fire, unless caused by the actual fault or privity
of the carrier;
(c) Perils, dangers, and accidents of the sea or
other navigable waters (e.g., river);
(d) Act of God;
(e) Act of war,
(f) Act of public enemies (e.g., pirates);
(g) Arrest or restraint of princes, rulers, or people
(even not under legal process), or seizure under
legal process;
(h) Quarantine restrictions;
(i) Act or omission of the shipper or owner of the
goods, his agent or representative;
(j) Strikes or lockouts or stoppage or restraint of
labor from whatever cause, whether partial or
general; Provided, That nothing herein
contained shall be construed to relieve a carrier
from responsibility for the carrier's own acts;
(k) Riots and civil commotions;
(l) Saving or attempting to save life or property at
sea;
(m) Wastage in bulk or weight or any other loss or
damage arising from inherent (i.e., natural;
intrinsic) defect, quality, or vice of the goods;
(n) Insufficiency of packing;
(o) Insufficiency or inadequacy of marks;
(p) Latent (hidden; concealed) defects not
discoverable by due diligence; and
(q) Any other cause arising without the actual fault
or neglect of the agents or servants of the
carrier, BUT the burden of proof shall be on the
person claiming the benefit of this exception to
show that neither the actual fault or privity of
the carrier nor the fault or neglect of the agents
or servants of the carrier contributed to the loss
or damage.
Note: For common carrier, Civil Code applies
(3) The shipper shall not be liable for loss or damage
sustained by the carrier or the ship arising from any
cause without the act, fault, or neglect of the
shipper, his agents, or servants
(4) Any deviation (change of established/regular or
agreed route) for the purpose of saving or
attempting to save life or property at sea OR any
“reasonable” deviation does not constitute breach
of this Act/contract of carriage such that carrier
 shall not be liable for any loss or damage resulting
therefrom: PROVIDED, however, That if the
deviation is for the purpose of loading cargo or
unloading cargo or passengers, then it shall a
prima facie unreasonable deviation
(5) (IMPORTANT [threshold of liability of carrier]): The
(common) carrier nor the ship (private carrier) shall
not be liable for any loss or damage to goods in an
amount exceeding US$500 per package (i.e.,
regardless of the actual amount of goods), or in
case of goods not shipped in packages, per
customary freight unit (e.g., per tonnage, etc.), or
the equivalent of that sum in other currency –
UNLESS: The nature and value of such goods have
been declared by the shipper in the B/L before
shipment, which declaration shall be prima facie
evidence but not conclusive on the carrier
By agreement between the carrier, master, or agent
of the carrier, and the shipper another maximum
amount than that mentioned in this paragraph may
be fixed: PROVIDED, That such maximum shall not
be less than the figure above named (i.e., not less
than $500 US dollars). In no event shall the carrier
be liable for more than the amount of damage
actually sustained (by loss/damage of goods).
The carrier nor the ship shall not be liable for loss
or damage of goods if the nature or value thereof
has been knowingly and fraudulently misstated by
the shipper in the B/L
(6) In case of goods of an inflammable, explosive, or
dangerous nature, captain or agent of the carrier
who has not consented with knowledge of their
nature and character, may at any time before
discharge (i.e., unloaded to its Philippine
destination) be landed at any place or destroyed or
rendered innocuous (not dangerous) by the carrier
without liability, instead, the shipper shall be liable
for all damages and expenses directly or indirectly
arising out of or resulting from such shipment. If
any such goods shipped with such knowledge and
consent(of the captain/agent) shall become a
danger to the ship or cargo, they may in like
manner be landed at any place, or destroyed or
rendered innocuous by the carrier without liability
on the part of the carrier, except to general
average if any (is written in the B/L; general
average refers to avoidance of goods from the ship
for the benefit of all).
WAIVEROF RIGHTS AND IMMUNITIES AND INCREASE
OF RESPONSIBILITIES AND LIABILITIES
Section 5. A carrier shall has the option (even without
the consent of shipper) to waivein whole or in part all or
any of his rights and immunities, or has option to
increase any of his responsibilities and liabilities under
this Act - PROVIDED such waiver or increase shall be
embodied/written in the B/Lissued to the shipper(Note:
The carrier cannot decreaseresponsibilities and
liabilities as this is void under Section 3 [8] but subject
to “agreement” Section 6)
The provisions of this Act shall not be applicable to
charter parties (i.e., charter contract between owner of
21
ship owner and the charterer) – HOWEVER: If B/L are
issued in the case of a ship under charter party (i.e., B/L
issued by ship owner to the charterer [e.g., charter party
is only time/voyage charter]), the ship owner and
charterer shall comply with the provisions of this Act.
Nothing in this Act prohibits the insertion in the B/L of
any lawful provision regarding general average
SPECIAL CONDITIONS
Section 6.  Notwithstanding the provisions of the
preceding sections (including Section 3 [8]), a carrier,
captain or agent of the carrier, and a shipper shall,
regarding transport of “particular” goods,be at liberty
to enter into any agreement in any terms(1) as to
the[increase/decrease/waiver] responsibility and
liability of the carrier for such goods, and (2) as to the
[increase/decrease/waiver] rights and immunities of the
carrier in respect of such goods, or (3) carrier’s
obligation as to seaworthiness so long as it is not
contrary to public policy, or (4)
[increase/decrease/waiver] the care or diligence of his
servants or agents in regard to the loading, handling
stowage, carriage, custody, care, and discharge of the
goods carried by sea: PROVIDED, That in this case no
B/L(i.e., bill of lading is a negotiable instrument) been,
or shall be issued and that (but in the meantime) the
terms agreed shall be embodied in a receipt which
receipt shall be marked as non-negotiable
Any agreement so entered into shall have full legal
effect:  PROVIDED, That this section (i.e., Section 6) shall
not apply to ordinary commercial shipments made in
the ordinary course of trade BUT ONLY to other
shipments (particular goods) where the character or
condition of the property to be carried or the
circumstances, terms, and conditions under which the
carriage is to be performed are such as reasonably to
justify a special agreement
Section 7. The carrier or a shipper are free to enter into
any agreement, condition, reservation, or exemption
as to the responsibility and liability of the carrier or the
ship for the loss or damage in connection with the
custody and care and handling of goods–BEFORE
loading and AFTER to the discharge from the ship
Section 8. The provisions of this Act shall not affect the
rights and obligations of the carrier under the provisions
of the Shipping Act, 1916, or under the provisions of
section 4281 to 4289, inclusive, of the Revised Statutes
of the United States, or of any amendments thereto; or
under the provisions of any other enactment for the
time being in force relating to the limitation of the
liability of the owners of seagoing vessels.
TITLE 2
Section 9. Nothing contained in this Act shall be
construed as permitting a common carrier by water to
discriminate between competing shippers similarly place
in time and circumstances, either(a) with respect to the
right to demand and receive bills of lading subject to
the provisions of this Act; or (b) when issuing such bills
of lading, either in the surrender of any of the carrier's
rights and immunities or in the increase of any of the
carrier's responsibilities and liabilities pursuant to
section 6, Title I, of this Act or (c) in any other way
prohibited by the Shipping Act, 1916, as amended.
Section 10. Section 25 of the Interstate Commerce Act
is hereby amended by adding the following proviso at
the end of paragraph 4 thereof: "Provided, however,
That insofar as any bill of lading authorized hereunder
relates to the carriage of goods by sea, such bill of
lading shall be subject to the provisions of the Carriage
of Goods by Sea Act."
Section 11. Where under the customs of any trade the
weight of any bulk cargo inserted in the bill of lading is
a weight ascertained or accepted by a third party
OTHER THAN the carrier or the shipper, and the fact
that the weight is so ascertained or accepted is stated in
the B/L, then, notwithstanding anything in this Act, the
B/L shall not be deemed to be prima facie evidence
against the carrier of the receipt of goods of the weight
so inserted in the B/L, and the accuracy (of the weight
of bulk cargo) thereof at the time of shipment shall not
be deemed to have been guaranteed by the shipper
(viz., the weight of bulk cargo determined by 3 rd party is
disputable by carrier and shipper).
Section 12. Nothing in this Act shall be construed as
superseding any part of the Act entitled "An act relating
to navigation of vessels, bills of lading, and to certain
obligations, duties, and rights in connection with the
carriage of property," approved February 13,1893, or of
any other law which would be applicable in the absence
of this Act, insofar as they relate to the duties,
responsibilities, and liabilities of the ship or carrier prior
to the time when the goods are loaded on or after the
time they are discharged from the ship.
Section 13. This Act shall apply to all contracts for
carriage of goods by sea to or from ports of the United
States in foreign trade. As used in this Act the term
"United States" includes its districts, territories, and
possessions: Provided, however, That the Philippine
legislature may by law exclude its application to
transportation to or from ports of the Philippine Islands
(i.e., this is where Article 1753 is made to apply
regarding law of destination). The term "foreign trade"
means the transportation of goods between the ports of
the United States (Philippines) and ports of foreign
countries. Nothing in this Act shall be held to apply to
contracts for carriage of goods by sea between any port
of the United States or its possessions, and any other
port of the United States or its possession: Provided,
however, That any bill of lading or similar document of
title which is evidence of a contract for the carriage of
goods by sea between such ports, containing an express
statement that it shall be subject to the provisions of
this Act, shall be subjected hereto as fully as if subject
hereto as fully as if subject hereto by the express
provisions of this Act: Provided, further, That every bill
of lading or similar document of title which is evidence
of a contract for the carriage of goods by sea from ports
22
of the United States, in foreign trade, shall contain a
statement that it shall have effect subject to the
provisions of this Act.
Section 14. Upon the certification of the Secretary of
Commerce that the foreign commerce of the United
States in its competition with that of foreign nations is
prejudiced the provisions, or any of them, of Title I of
this Act, or by the laws of any foreign country or
countries relating to the carriage of goods by sea, the
President of the United States, may, from time to time,
by proclamation, suspend any or all provisions of Title I
of this Act for such periods of time or indefinitely as
may be designated in the proclamation. The President
may at any time rescind such suspension of Title I
hereof, and any provisions thereof which may have
been suspended shall thereby be reinstated and again
apply to contracts thereafter made for the carriage of
goods by sea. Any proclamation of suspension or
rescission of any such suspension shall take effect on a
date named therein, which date shall be not less than
ten days from the issue of the proclamation.
Any contract for the carriage of goods by sea, subject to
the provisions of this Act, effective during any period
when title I hereof, or any part thereof, is suspended,
shall be subject to all provisions of law now or hereafter
applicable to that part of Title I which may have thus
been suspended.
Section 15. This Act shall take effect ninety days after
the date of its approval; but nothing in this Act shall
apply during a period not to exceed one year following
its approval to any contract for the carriage of goods by
sea, made before the date on which this Act is
approved, nor to any bill of lading or similar document
of title issued, whether before or after such date of
approval in pursuance of any such contract as aforesaid.
Section 16. This Act may be cited as the "Carriage of
Goods by Sea Act."
COMMENTS:
1. Written extrajudicial demand does NOT TOLL the
running of one-year prescriptive period under
COGSA (within which to file Suit/Action; DOLE
Philippines, Inc. vs. Maritime Company of the
Philippines, GR No. L-61352, February 27, 1987; p.
209)
COGSA Section 3 Par 6: In any event the carrier
(shipowner or charterer) and the ship shall be
discharged from ALL liability for loss or damage-
UNLESS: Suit (action for damages) is brought
“within one year after delivery of the goods” or
“the date when the goods should have been
delivered” (to the person entitled for delivery under
the contract of carriage [holder of B/L which could
be shipper/consignee]): PROVIDED, That if a written
notice of loss or damage, either apparent or
concealed (not apparent), is not given as provided
for in this section, that fact shall not affect or
prejudice the right of the SHIPPER (or consignee) to
bring suit (action for damages) within one year
 after the delivery of the goods or the date when
the goods should have been delivered (to the
person entitled to delivery under contract of
carriage [shipper/consignee])
Facts: Goods were transported from other country
with Philippines as destination. The goods were
received by the consignee on December 18, 1971.
The consignee asseverates that when he made
extrajudicial demand on May 4, 1972 reckoned
from the time he received the goods on December
18, 1971, it was still within the 1-year prescriptive
period under COGSA and hence, the 1-year
prescriptive period is tolled/suspended and has to
start anew also on May 4, 1972 pursuant to Article
1155 NCC – so that when action for damages was
filed with RTC (judicial demand) on June 11, 1973, it
is still within the 1-year prescriptive period (i.e.,
May 4, 1972 to June 11, 1973). (Note: Article 1155
NCC: “The prescription of actions is
interrupted/tolled when they are filed before the
court (judicial demand), or when there is a written
extrajudicial demand by the obligee, or when there
is any written acknowledgment of obligation by
the obligor” - which interruption/tolling makes the
prescription of action runs anew of fresh start from
the date of such extrajudicial/judicial demand)
Issue: Whether or not the one-year prescriptive
period under Section 3 Par 6 2nd Paragraph COGSA
within which to file suit/action for loss/damages
against the carrier/ship – is subject to tolling under
Article 1155 particularly written extrajudicial
demand?
Held: NO. Article 1155 NCC is a general provision
which has to yield to a special/specific provision
under Section 3 Par 6 2 nd Paragraph COGSA –
otherwise, to apply Article 1155 NCC would have
the effect of extending the one-year prescriptive
period specially fixed under COGSA. The reason for
the strict observance of the one-year prescriptive
period is to decide actions for loss/damages of
goods affecting transportation of goods by sea in as
short a time as possible (Note: Judicial demand
tolls the running of the one-year prescriptive period
under COGSA)
(a) EXCEPTION: The one-year prescriptive period
under Section 3 Par 6 COGSA can be suspended
or extended by the express agreement of
parties (Universal Shipping Lines, Inc. vs.
Intermediate Appellate Court, GR No. 74125,
July 31, 1990; p. 212)
2. The one-year prescriptive period under Section 3
Par 6 2nd Paragraph of COGSA given to shipper
within which to file suit/action against carrier/ship
– not only applies to shipper/consignee but also
against insurer of shipper/consignee who becomes
subrogee of the rights of the insured
shipper/consignee after the insurer paid the
shipper/consignee (Filipino Merchants Insurance
Company, Inc. vs. Court of First Instance of Manila,
GR No. L-54140, October 14, 1986; p. 215)
Reason: Otherwise, if the one-year prescriptive
period under COGSA does not apply against
23
insurers, then what COGSA intends to prohibit after
the lapse of the one-year prescriptive period can be
indirectly avoided by way of the shipper/consignee
simply filing a claim against the insurer even after
the lapse of the said one-year prescriptive period,
and subsequently for the insurer to file action
against the carrier – in which case, 1-year limitation
under COGSA will be practically useless.
Opinion: Hence, the insurer must be on the lookout
that the insured shipper/consignee must claim the
insurance proceeds well within the 1-year
prescriptive period of COGSA – so that after the
insurer paid and now as subrogee, it can also file
action against the carrier within the 1-year
prescriptive period under COGSA
Note: This one-year prescriptive period applies to
shipper, insurer – but also to consignee or any legal
holder of the bill of lading (Belgian Overseas
Chartering and Shipping vs. Philippine First
Insurance Co., Inc., GR No. 143133, June 5, 2002; p.
226)
(a) The one-year prescriptive period under COGSA
applies in favor of carrier/ship as against the
shipper – but does not also apply in favor of
the insurer as against the insured-
shipper/consignee (Mayer Steel Pipe
Corporation vs. Court of Appeals, GR No.
124050, June 19, 1997; p. 218)
Facts: Shipper transported his goods with
carrier. The goods were insured by shipper with
insurer. When goods reached Hongkong, the
goods were damaged. The shipper-insured
claimed the insurance against the insurer after
the lapse of the 1-year prescriptive period
under COGSA. Now, the insurer refused to pay
on ground that the shipper claimed the
insurance after the 1-year prescriptive period
under COGSA. The reason given by the insurer is
that it would be unfair for the insurer to pay the
insured shipper after the 1-year prescriptive
period already lapsed, and render the insurer
incapable of claiming against the carrier since
pursuant to the case of Filipino Merchants
Insurance Company, Inc. vs. Court of First
Instance of Manila (supra), the 1-year
prescriptive period under COGSA not only
applies against the shipper but also against the
insurer.
Issue No. 1: Is the insurer correct?
Held: NO. While it is true that the 1-year
prescriptive period under COGSA applies not
only against the shipper/consignee but also
against the insurer, nevertheless, the 1-year
prescriptive period under COGSA does not apply
in favor of the insurer. Reason: The basis of the
action of the shipper against the insurer is not
under COGSA but rather under the provisions
of the Philippine Insurance Code in relation to
NCC which prescriptive period of action under
Insurance Code is longer than the 1-year
prescriptive period under COGSA
 Issue No. 2: What is then the prescriptive
period for the insured-shipper to file action
against the insurer based on the insurance?
Held: 10 years. The insurance policy being a
written contract, Article 1144 NCC then applies
which provides that written contract prescribed
in 10 years from the cause of action accrues
3. The one-year prescriptive period under COGSA
applies to “loss/damage” of goods (i.e., physical
disappearance or physical deterioration of the
goods) – and does not apply to “misdelivery” of
goods (Ang vs, CompaniaMaritima, GR No. L-30805,
December 26, 1984; p. 222)
Facts: Yau Yue Bank in Hongkong agreed to sell
goods to Teves in Manila. Yau Yue Bank transacted
with Tokyo Boeki Ltd. (manufacturer) regarding the
goods needed by Teves. Tokyo Boeki loaded the
goods with the carrier with Manila as destination,
and the carrier issued B/L where written thereon is
Tokyo Boeki as shipper. And then Tokyo Boeki
indorsed the B/L to Yau Yue Bank, hence, such B/L
was surrendered by Tokyo Boeki to Yau Yue Bank.
Then Yau Yue Bank assigned the B/L to the
Complainant in Manila thereby Yau Yue Bank
surrendered possession over B/L to the
Complainant. When the good reached Manila, the
carrier delivered the goods to Teves which delivery
should be to the Complainant being the present
holder of the B/L (viz., there is “misdelivery” of by
carrier goods to Teves), this pursuant to the terms
in the B/L itself that the carrier shall deliver the
goods to the holder of the B/L (which in this case,
the Complainant). The Complainant filed action
against the carrier one year after the misdelivery of
the goods to Teves. The carrier in its Answer
countered that the action filed by the Complainant
already prescribed as the 1-year prescriptive
period under COGSA already lapsed
Issue No. 1: Is the carrier correct that the 1-year
prescriptive period already lapsed?
Held: NO. The carrier could have been correct that
the 1-year prescriptive period under COGSA already
expired only when the Complainant filed action for
DAMAGES/LOSS of the goods pursuant to Sec 3 Par
6 COGSA. But then, the basis of the action of the
Complainant is not about damage/loss of goods,
but rather “MISDELIVERY” of goods – hence, the 1-
year prescriptive period under COGSA does not
apply because the goods are not damaged/loss
but rather the goods were merely "misdelivered."
“Damage/loss” referred to under Section 3 (6)
COGSA refers to PHYSICAL deterioration of the
goods (damage) or PHYSICAL disappearance of the
goods (i.e., loss) – and not to mere misdelivery
Issue No. 2: What prescriptive period therefore
applies in the case at bar?
Held: Prescriptive period under Article 1144 NCC,
which is 10 years from cause of action accrued for
written contract – which in the case at bar, the B/L.
The cause of action of the complainant accrued
from the time of misdelivery.
24
4. Section 3(6) of COGSA only refers to “physical”
loss/damage – and not to damage/loss in the
legal/general sense (e.g., depreciation of the
“sale/market value” of goods is loss/damages, but
it is not “physical” loss/damage; Mitsui O.S.K. Lines
Ltd vs. Court of Appeals, GR No. 119571, March 11,
1998; p. 223)
Facts: Goods were transported by shipper with the
carrier from Philippines to France. However, when
the goods reached France, there was a
considerable transport delay so that at the time the
goods reached France, it was already market off-
season for that goods in France (so that the
sale/market value of the goods deteriorated[less
profit]). Hence, the consignee in France only paid
half of the value of the goods (i.e., not due to
loss/damaged on the “physical condition” of the
goods, but because of the “sale/market value”).
Because the carrier refused to pay the shipper the
other half of the value of the goods, the shipper
filed action against the carrier. The carrier
countered that the 1-year prescriptive period
under COGSA to file action for loss/damage of
goods already lapsed from the time the goods were
received by the consignee in France.
Issue No. 1: In the case at bar, is "loss or damage"
of the goods based on their “sale/market value” –
is within the contemplation of Section 3(6) COGSA?
Held: NO. Because what is contemplated under
Section 3(6) COGSA only refers to “PHYSICAL
loss/damage” – and not loss/damage based on
their sale/market value
Issue No. 2: What is then the applicable prescriptive
period?
Held: 10 years. The contract of carriage between
the carrier and shipper is a written contract by way
of B/L, and under Article 1144 NCC: Written
contract prescribes in 10 years from the time the
cause of action accrues
Personal observation: Under Article 1753:The law
of the country to which the goods are to be
transported shall govern the liability of the
common carrier for their loss, destruction or
deterioration (i.e., law of destination [France]). If
that is the case, then why the Court attempted to
apply Philippine law as to the liability of the carrier?
Reason: The basis of the cause of action of the
shipper is not based on NCC governing liability of
common carriers from Article 1732 to 1766 as there
is no damage/loss of goods caused by the
negligence in transportation by the common
carrier but merely misdelivery, neither under
COGSA as loss/damage of goods referred to under
COGSA refers to physical loss/damage and not to
misdelivery - HENCE: What applies is still the NCC
but particularly OBLICON
5. “Shipper’s Load and Count” (explained;
International Container Terminal Services, Inc. vs.
Prudential Guarantee and Assurance Co., Inc., GR
134514, December 8, 1999; p. 225)
Facts: Carrier loaded goods contained in a
container for Shipper from California bound to
Manila – under “shipper’s load and count.” The
Carrier issued B/L written thereon Consignee as
consignee. The Consignee insured the goods with
Insurer. When the goods reached Manila, the
Carrier discharged the goods to the Arrastre
Operator for safekeeping. The Broker withdrew the
goods from the Arrastre Operator and delivered to
goods to the Consignee. When the goods reached
the Consignee, the latter found that there are
physical losses of goods. The Insurer paid the
Consignee, then the Insurer as subrogee demanded
payment from the Arrastre Operator, but the
Arrastre Operator refused to pay the Insurer.
Issue: Is the arrastre operator liable for the losses?
Held: NO. The goods were loaded by the Shipper
under “Shipper’s load and count”, i.e., the Shipper
is solely responsible for the loading of the
container (containing the goods) into the vessel of
the Carrier, so that the Carrier is not in privy or
required to inspect/verify as to the contents or
quantity of the goods as are contained inside the
container. When the goods reached Manila, the
Carrier discharged the goods to the Arrastre, the
duty of the Arrastre is only to take good care of the
goods “as received” from the Carrier, and to turn
over the good to the person entitled to receive (in
this case, the Broker withdrew the goods from the
Arrastre and then delivered the goods to the
Consignee). The goods being transported under
“shipper’s load and count, "just like the carrier, the
Arrastre is not also required to verify the contents
of the container “as received” by it from the carrier
and compare them with the B/L – viz., the Arrastre
is only required to deliver the goods to the
Consignee (through Broker) “as received” from the
Carrier.
In the case at bar, the loading being as “shipper’s
load and count,” for as long as the Arrastre able to
prove that it delivered the goods to the Consignee
(through Broker) "as received" from the Carrier
which in this case such burden of proof was proven
by the Arrastre thereby making the Arrastre not
liable for the loss of the goods
(a) Nature of service of Arrastre Operator
(International Container Terminal Services, Inc.
vs. Prudential Guarantee and Assurance Co.,
Inc., GR 134514, December 8, 1999; p. 225)
The legal relationship between arrastre
operator and consignee (person who has right
to receive the goods from the carrier/ship as
provided in the B/L) is akin the relationship
between warehouseman and depositor. In case
of loss/damage of goods, the burden is on the
arrastre operator to prove that it complied
with its duty in accordance with law.
Note: Arrastre operator is deemed as “common
carrier” (Philippine First Insurance Co. vs.
WallemPhils. Shipping Inc. GR No. 165647,
March 26, 2009) – hence, pursuant to Article
1733 NCC, it is bound to observe extraordinary
diligence in the vigilance over the goods while
25
in its possession until it delivery to the
shipper/consignee.
6. “Package Limitation” of carrier’s liability for
loss/damage of goods (Section 4 [5] COGSA)
Section 4[5] COGSA [threshold/limit of liability of
carrier]: The (common) carrier nor the ship (private
carrier) shall not be liable for any loss or damage
to goods in an amount exceeding US$500 per
package (i.e., regardless of the actual amount of
goods), or in case of goods not shipped in
packages, per customary freight unit (e.g., per
tonnage, etc.), or the equivalent of that sum in
other currency – UNLESS: The nature and value of
such goods have been declared by the shipper in
the B/L before shipment, which declaration shall be
prima facie evidence but not conclusive on the
carrier
(a) Belgian Overseas Chartering and Shipping vs.
Philippine First Insurance Co., Inc., GR No.
143133, June 5, 2002; p. 226
Facts: 242 coils (goods) were received by
Carrier from Germany to be transported to
Manila port. In the B/L, it is stipulated that the
liability of the Carrier is limited to US$500 per
package. Annotated in the B/L is about the
statements in the Letter of Credit (L/C) stating
the value of the goods per metric ton which
value is way higher than US$500 per package
as written in the B/L. When the goods reached
Manila port, four coils were physically
damaged. The Carrier invoked COGSA Section 4
(5) which provides: “Carrier shall not be liable
beyond US$500 “per package” unless the
shipper declares the value of the goods
writtenon the B/L”. However, the shipper
invoked Article 1749 NCC which provides, “A
stipulation is binding when the common
carrier's liability is limited to the “VALUE of the
goods” as WRITTEN on the B/L - unless the
shipper or owner declares a greater value”
written in the B/L
Issue: In contract of carriage of goods, which
law that primarily governs the rights and
obligations of common carriers?
Held: Civil Code. Article 1766 NCC provides, “In
all matters not regulated by this Code (NCC),
the rights and obligations of common carriers
shall be governed by the Code of Commerce
and by special laws (e.g., COGSA)”. Hence, Code
of Commerce and by special laws (e.g., COGSA)
are only suppletory in the absence of provision
of the NCC
Issue: In the case at bar, what governs the
contract of carriage of the parties – is it Article
1749 NCC or special law particularly COGSA
Section 4 (5)?
Held: COGSA Section 4 (5).Reason: Article 1749
NCC does not apply because there is no
provision therein about limiting the liability of
common carrier “PER PACKAGE” – instead,
what Article 1749 provides is the limitation of
liability of common carrier as to “VALUE of the
goods” written on the B/L (i.e., NOT limitation
of liability PER PACKAGE). Now, under COGSA
Section 4 (5), it is SPECIFICALLY PROVIDED
therein that the common carrier can limit its
liability as written in the B/L only up to US$500
per package. Hence, applying Article 1766 NCC,
“In all matters not regulated by this Code
(NCC), the rights and obligations of common
carriers shall be governed by the Code of
Commerce and by special laws which in this
case the limitation of liability PER PACKAGE is
SPECIFICALLY provided under COGSA Section 4
(5) rather than the GENERAL provision of
Article 1749 NCC.
Issue: COGSA Section 4 (5) which provides:
“Carrier shall not be liable beyond US$500 per
package UNLESS the shipper DECLARES THE
VALUE of the goods written on the B/L”.
Shipper alleged, granting that COGSA Section 4
(5) applies, the liability of the common carrier is
not limited to US$500 per package because in
the B/L, therein ANNOTATED about the
statements in the Letter of Credit (L/C) stating
that the VALUE of the goods PER METRIC TON
which value of the goods is way higher than
US$500 PER PACKAGE, which by such
annotation of L/C on the B/L, in effect
technically a DECLARATION OF THE VALUE of
the goods per metric in the B/L – hence, limited
liability to US500 per package under COGSA
Section 4 (5) does not apply. The question, is
the Shipper correct?
Held: NO. Such annotation of the L/C on the
B/L stating the value of the goods per metric
ton is NOT A DECLARATION OF THE VALUE of
goods in the B/L required under COGSA Section
4 (5). The annotation of L/C on the B/L was
made merely for the convenience between the
shipper and the bank processing the L/C (the
bank being the consignee and the shipper being
merely the notify party – such that the shipper
cannot withdraw the goods he imported
without paying first the bank that granted the
L/C, and only after the shipper pays the bank
that the latter to surrender possession of the
B/L to the shipper). In other words, the L/C
indicating the value of the goods per metric
ton even if annotated on the B/L is separate
and distinct from the B/L and has nothing to
do between the contract of carriage between
the common carrier and the shipper
Issue: The B/L provides that the liability of the
common carrier is limited only up to US$500
per package. Suppose, the 242 coils were
contained in 2 containers, should such 2
containers be deemed as 2 packages so that
the liability of the common carrier would only
be US$1,000?
Held: NO. “Per package” is not to be construed
by package or by container or by crate or
similar denomination – instead, it is to be
construed per unit or per good. Hence, there
26
being 4 coils damaged, the common carrier is
liable toUS$2000 (i.e., US$500 x 4 units)
(b) Eastern Shipping Lines Inc. vs. BPI/MS
Insurance Corp., GR 182864, January 12, 2015
(incorporation/insertion for the Invoice with the
B/L)
Facts: COGSA Section 4 (5) which provides:
“Carrier shall not be liable beyond US$500 per
package UNLESS the shipper DECLARES THE
VALUE of the goods written on the B/L”.
Issue: Is the incorporation/insertion of the
invoice itself (written thereon the value of the
goods) with the B/L complies with the
declaration of value under COGSA Section 5 (5) -
such that the limitation of liability of carrier for
US$500 per package does not apply?
Held: YES. COGSA Section 4 (5) does not require
that the value of the goods must be written on
the very B/L itself. Compliance on COGSA
Section 4 (5) can be attained by incorporating
the invoice, by way of reference to the B/L
provided such invoice contains the value of the
goods. The value of the goods being written on
the invoice, and incorporated with the B/L, in
effect, the shipper informed the carrier about
the value of the goods, and being informed, the
carrier can charge the freightage in accordance
with the value of the goods.
Note: In the same case, the SC ruled that mere
insertion in the B/L about the invoice number
does not satisfy the requirement of COGSA
Section 4 (5) about the declaration of the value
of the goods in the B/L, hence, the US$500 per
package limited liability applies in favor of the
carrier. Reason: Mere insertion of the invoice
number does not declare the value of the goods
Note: Incorporation/insertion of L/C with the
B/L is not declaration of value of goods in the
B/L
7. “Package Limitation” of carrier’s liability for
loss/damage of goods under Section 4 [5] COGSA
(Philam Insurance Company, Inc. vs. Heung-A
Shipping Corp., GR 187701, July 23, 2014)
Facts: Shipper shipped 19 pallets of 200 rolls of
goods (contained in container) with Carrier from
South Korea bound to Manila with Consignee as
consignee, with Insurer as insurer. A B/L was issued,
but the Shipper did not declare therein the value of
the goods. During the voyage, the goods sustained
damaged due to seawater. It also found out that
there is damage to the container supplied by the
Shipper to the Carrier. The Consignee received the
goods on January 5, 2001 with damage of 17
pallets. Consignee claimed damages against Carrier,
but the latter refused, hence, Consignee claimed
the insurance proceeds from the Insurer. Now, the
Insurer as subrogee, filed against the Carrier within
one year from the time the Consignee received the
goods on January 5, 2001.
Issue No. 1: Whether or not the goods were
damaged during the possession of the Carrier?
Held: YES. Because it is proven that the goods were
damaged during voyage
Issue No. 2: What degree of diligence required of
Carrier as common carrier – is it due diligence under
section 3 (1) COGSA, or extraordinary diligence
under Article 1733 NCC?
Held: Extraordinary diligence. Article 1766 NCC
provides that in all matters not regulated by the
NCC, then Code of Commerce and special laws
(such as COGSA) shall apply by suppletory, and also
considering that Philippines if the destination, then
Article 1753 provides, the liability of common
carrier shall be governed by the law of destination,
which in this case, Philippines. Now, the diligence
required of common carrier in transportation of
goods is extraordinary diligence (Article 1733 NCC).
Issue No. 3: Is the Carrier could still be liable for
damages even if the container containing the good
supplied by Shipper himself is defective that could
also attribute to the seawater getting into the
container and damaged the goods?
Held: YES. Article 1742 NCC: Even if the damage/
lossof the goods should be caused by the character
of the goods, or the faulty nature of the packing or
of the containers, the common carrier must
exercise due diligence to prevent or at least lessen
the damage/loss. In the case at bar, the Carrier was
not also able to prove that it exercised due diligence
for prevent/lessen damage on the goods
Issue No. 4: Did the Insurer filed the action in court
within the one-year prescriptive period under
Section 3 (6) COGSA?
Held: YES (see the Facts)
Issue No.5: Suppose the Consignee did not comply
with the written notice in accordance with Section 3
(6) COGSA, can the Insurer still file action against
carrier?
Held: YES. Provided, the Insurer should file action
with court within one year from the time the
Consignee received the goods on January 5, 2001.
Reason: Section 3 (6) COGSA: If a written notice of
loss or damage,either apparent or concealed (not
apparent), is not given as provided for in this
section,that fact shall not affect or prejudice the
right of the SHIPPER (or consignee) to bring suit
(action for damages) within one year after the
delivery of the goods or the date when the goods
should have been delivered (to the person entitled
to delivery under contract of carriage
[shipper/consignee]).
Hypothetical Issue: Article 366 Code of
Commerce provides claim for damages against
the carrier must be made FROM RECEIPT of the
goods if the damage is apparent from outside -
OTHERWISE: If the damage cannot be
ascertained from outside the package, then
claim must be made within 24-hour from the
time of the opening of the package. While
Section 3 (6) COGSA provides that an action
shall be brought within 1 year from delivery of
the goods. Now, the question is, which shall
govern?
27
Answer: Section 3 (6) COGSA. Reason: In the
Statutory Construction, when two laws are
conflicting and cannot be harmonized, then
special law shall prevail over the general law.
COGSA is a special law and Code of Commerce
is a general law (Note: In this same case of
Philam Insurance Compny, Inc. vs. Heung-A
Shipping Corp., GR 187701, July 23, 2014, the
issue was squarely raised, i.e., which shall
govern, is it Article 366 Code of Commerce or
Section 3 (6) COGSA. Here, the Supreme Court
did not squarely addressed the issue but at any
rate, it applied COGSA)
Issue No.6: If the Insurer filed the action within one
year from the time the Consignee received the
goods on January 5, 2001 – then, the question is,
what is the basis of amount of liability of the
Carrier?
Held: “Limited Package Liability” for US$500 per
package pursuant Section 4 (5) COGSA. Reason: The
Shipper did not declare the value of the goods in
the B/L
Issue No. 7: If the “Limited Package Liability” for
US$500 per package pursuant Section 4 (5) COGSA
applies – then, how much is the Carrier liable?
Held: There being 17 pallets loss/damaged, then 17
pallets multiplied with US$500, it would be
US$8,500
CHAPTER 5
The Salvage Law
Prefatory:
1. Salvage – defined (Barrios vs. Go Thong & Co., GR L-
17192, March 30, 1963)
It is the compensation allowed to salvors (a) who
saved the ship and/or its cargo in whole or in part
from impending peril of the sea, or (b) who
recovered the ship and/or its cargo from actual loss
(shipwreck)
2. Shipwreck - defined (Philippine American General
Insurance Co. vs. Delgado Stevedoring Co., GR
36109-R, July 9, 1974)
Ship that received damage (such as swallowed by
waves, ran against a thing at sea, or ran on coast
[aground]) rendering the ship incapable of
navigation
THE SALVAGE LAW (ACT No. 2616)
Section 1 (actual derelict [i.e., derelict in the real sense])
When in case of shipwreck, (a) the vessel and/or its
cargo are beyond the control of crews, or (b) the vessel
and/or its cargo are abandoned by the crews – WHICH:
Ship and/or cargoes were picked up and brought to a
safe place by other persons (salvors), – THEN: These
salvors are entitled to salvage reward
Those who assisted the salvors in saving vessel or its
cargo from shipwreck - are also entitled to salvage
reward
Section 2 (When captain is present, his consent is
required before salvage begins)
If the captain or person acting in captain’s stead
(representative) is present (on board vessel, or in the
premises of the shipwreck vessel/merchandise/effects),
WITHOUT: Prior consent of captain or such person
acting in captain’s stead : (a) no one shall take from
sea/shores/coasts, the merchandise or effects
proceeding from shipwreck, or (b) no one shall proceed
to salvage
Section 8. The following shall have no right to salvage
reward (whether as salvors or salvage assistance):
(a) Crew of the shipwrecked vessel or vessel in danger
of shipwreck;
(b) One who commenced salvage despite opposition by
captain or his representative; and
N.B.: Take note also of Section 2 where the captain
or person acting in his stead is present, no one shall
proceed of salvage without prior consent of said
captain or person
(c) One who failed to comply with provisions of Section
3 all those salvaged, and requesting all interested
Section 3. (Where should the salvors make the
delivery of the salvaged)
If after the salvage, the salvors shall deliver the
salvaged (vessel/merchandise/effects) to the
captain/owner/representative of the
derelict/shipwrecked vessel (but subject to salvage
expenses and reward [Section 4]). However, if such
captain/owner/representative is absent and he is
unknown, then the salvors shall deliver as soon as
possible the salvaged to the collector of customs,
but if the port has no collector then salvors shall
deliver them to the provincial treasurer or to the
mayor (subject to Section 5 and Section 6)
Section 4. (Right of owner to the delivery of the
salvaged – subject to right of retention of the salvors)
After the salvage, the owner (shipowner/cargo owner)
or his representative has right to the delivery of the
salvaged – PROVIDED: The owner either (a) pays the
salvors (regarding salvage expenses and salvage
reward), or (b) gives bond to secure such payments
The amount of said bond shall be at amount as agreed
by the salvors and the owner – HOWEVER: In case of
disagreement, the amount shall be determined by the
Collector of Customs/RTC of the province where the
salvaged are found
Section 6. (Delivery of the salvaged by the authorities to
the owner)
While the salvaged are at the disposition (control) of
the authorities (i.e., Collector of Customs, Provincial
Treasurer, Mayor), and the owner (shipowner/cargo
owner) or his representative claimthe salvaged, such
authorities shall deliver them to the
owner/representative – PROVIDED: There is (1) no
controversy/issue regarding the value of the salvaged,
AND (b) a bond given by the owner/representative to
secure payment of salvage expenses and salvage
reward – OTHERWISE: The matter of delivery shall be
decided by the RTC (where the salvaged are found)
28
Section 5. (Duty of Collector of Customs, or provincial
treasurer or mayor – to whom salvaged is
delivered/reported)
The Collector of Customs, or provincial treasurer or
mayor, to whom salvage is reported/delivered
(pursuant to Section 3) - shall:
(a) Order the salvaged be safeguarded and
inventoried;
(b) In the absence of objection, shall order the sale at
public auction of the salvaged - that are (1) in
danger of immediate loss (e.g., perishable goods)
or (1) the conservation/preservationof the
salvaged is not practical as such conservation can
evidently prejudiced the interests of the owner
(e.g., conversation/preservation would entail
expenses beyond the value of the salvaged)
(c) Order advertisement (published) within 30 days
from salvage with one of the local newspapers or in
nearest newspaper– REGARDING: All details of
disaster, with statement of the mark and number of
persons to make their claims
Section 7. (Power of the authorities [Collector of
Customs/provincial treasurer/mayor] to sell the
salvaged at public auction – and sharing of the sales
proceeds)
After 3 months following the advertisement, the
authorities shall subject the salvaged to sale at
public auction, and the sales proceeds be deducted
therefrom the salvage expenses and salvage
rewards. The excessof the sales proceeds shall be by
deposited with the National Treasury – HOWEVER:
If 3 years passed without anyone claiming the
deposited excess, one-half of the deposit goes to
salvor/s, the other half to the Government
Section 11. (Deductibles from sales proceeds
through public auction, and the threshold amount
for the salvage reward and salvage assistance)
From the proceeds of the sale by public auction on
the salvaged, the following are deductibles, in
order:
(a) First: Expenses for the custody, conservation,
advertisement, auction, and taxes/duties paid
for entrance of the salvaged; and
(b) Second: The salvage expenses
NOW: From the remaining amount, shall be paid
salvage reward and salvage assistance -which
salvage reward and salvage assistance shall not
exceed 50% of such remaining amount
Section 12. (Division of the reward among salvors
and salvage assistors)
The amount of salvage reward for the salvors and
the salvage assistors, shall be divided between
them in proportion to the service they respectively
rendered (i.e., quantum meruit). However, in case
of doubt as to quantum meruit, then the reward
shall be divided to all of them equally
Those who were exposed to same danger (as that
of the salvors and salvage assistors who salvaged
the vessel and/or its cargo) in their effort to save
persons – shall also have the right to participate in
the salvage reward

Section 13. (Distribution of salvage reward – when
another vessel is used in the salvaging)
If in salvaging the vessel and/or its cargo, another
vessel is used, the salvage reward shall be divided in the
following:
In the absence of agreement of the division of the
salvage reward:
(1) Vessel owner – 50% of the salvage reward;
(2) Captain – ¼ of the salvage reward; and
(3) Crews – ¼ of the salvage reward in proportion to
their respective salaries
Salvage expenses and salvage reward – shall be taken
from the salvaged
Section 9. (When the agreement on the amount of
salvage reward and salvage assistance – is voidable and
hence be reduced)
If during the time the vessel was in danger of being
shipwrecked, an agreement is entered (say between
the salvors and the captain/owner/representative)
regarding the amount of salvage reward or salvage
assistance, the validity of such agreed amount may be
impugned/annulled on ground that it is excessive so
that it may be reduced to an amount that is
proportionate to the circumstances (i.e., circumstances
enumerated under Section 10).
Reason: Article 1330 NCC: A contract where consent is
given through mistake, violence, intimidation, undue
influence, or fraud - is voidable. Here, it could be that
the owner/captain/representative was forced to agree
on such unreasonable amount demanded by the salvors
prior to salvaging even if excessive because the salvors,
taking advantage of the situation, could have imposed
undue influence
Section 10. (Things to consider in determining the
amount of salvage reward and salvage assistance)
In a case (a) coming under Section 9, or (b) in the
absence of agreement regarding the amount of salvage
and salvage assistance – THEN: Such amount shall be
fixed by RTC of province where salvaged are found,
taking into consideration the following:
(a) Principally (primarily), the salvage expenses
incurred by the salvors;
(b) Zeal (enthusiasm) demonstrated by the salvors;
(c) Time employed by the salvors in salvaging;
(d) Services rendered by the salvors (i.e., quantum
meruit);
(e) Excessive expensesincurred by the salvors in
salvaging;
(f) Number of persons who aidedthe salvaging
(i.e.,salvage assistors);
(g) Danger to which salvors and the salvaged were
exposed; and
(h) Value of the salvaged after deducting the salvage
expenses
Comments:
1. Salvage – defined
It is the compensation for the service of the salvors
and those who assisted, in salvaging a ship and/or
its cargo in whole or in part, (a) from an
29
impending/imminent peril at sea (e.g., in impending
danger of subsiding because of big waves,
impending danger of loss, etc. – quasi-derelict), or
(b) after the actual loss of the ship and/or its
cargoes (shipwreck; Barrios vs. Go Thong & Co., GR
L-17192, March 30, 1963)
2. Requisites for salvage reward is warranted (Barrios
vs. Go Thong and Co., GR No. L-17192, March 30,
1963) – whether the vessel is at derelict, legal
derelict or quasi-derelict
(a) There is marine peril that endangers the vessel
to shipwreck
(b) Salvors executed salvage - not due to duty (i.e.,
“not due to duty” such as contract [between
vessel saved and the salvor/s] or as official duty
[coast guards])
(c) Salvage is successful whether in whole/part
3. Subjects of salvage (i.e., things that can be
salvaged)
(a) Ship itself
(b) Jetsam: goods cast (thrown) into sea and there
sink and remain under water
(c) Floatsam/flotsan: goods remain floating on the
sea
(d) Lagan/ligan: goods cast (thrown) into the sea
but remained floating because of buoys (i.e.,
goods tied to floaters)
4. When is the vessel and her cargo fit for salvage
(a) Derelict in the real sense
Ship and/or its cargo are abandoned at sea and
without any hope of recovering them
(abandoned sine spe recuperandi)
HERE: There being no hope of recovery, intent
to return is no longer an issue as it is clearly
implied with the phrase "no hope of recovery"
(b) When the vessel is not at derelict in the real
sense, and whether or not there is “intention to
return” is at issue – THEN: Salvage still proper
when:
(1) Legal derelict
Vessel abandoned and the salvors proved
that the captain had no intent to return to
recover the vessel and/or its cargo
(abandoned sine animo revertendi)
Note: If the captain abandoned the vessel
with no intent to return, it is (legal) derelict,
and a (subsequent) change of their
intention from no intent to return to intent
to return will not change its nature that the
vessel is already a legal derelict that is
proper subject of salvaging (Erlanger &
Galinger vs. New Zealand Insurance Co., GR
No. L-10051, March 9, 1916; citing Abbott’s
Law of Merchant Ships and Seamen, 14th
Edition, p.994)
(2) Quasi-derelict
The captain has intent to return as the
vessel merely temporarily abandoned by
him in order to seek help from elsewhere -
HOWEVER: When the vessel was
temporarily abandoned, it was under
"considerable" peril of the sea and left
 without sufficient precaution to protect the
vessel from becoming shipwreck (Erlanger
& Galinger vs. New Zealand Insurance Co.,
GR No. L-10051, March 9, 1916)
5. Cases where vessel is derelict
(a) Legal derelict (vessel abandoned without intent
to return [abandoned sine animo revertendi])
(Wallace vs. Pujalte, GR No. L-10019, March 29,
1916)
It would appear to us that the trial court was
correct in finding that the vessel in question was
a derelict. It had capsized and was lying on its
side, its mast (long pole standing on deck) and
sails (cloth to catch wind) submerged and with
every indication that it might founder
(submerged/sink) at any moment; it had been
deserted (abandoned) by its officers and crew
with no intention on their part to return”
Basis of the SC that deemed the vessel as legal
derelict showing the captain's “no intent to
return” when he abandoned the vessel: The
condition of the vessel when abandoned by the
captain
(b) Legal derelict (vessel abandoned without intent
to return [abandoned sine animo revertendi])
(Erlanger & Galinger vs. New Zealand Insurance
Co., GR No. L-10051, March 9, 1916)
Facts: The vessel was partially submerged
when abandoned by the captain - i.e.,
submerged 11 feet fore (in front) and 20 feet aft
(back) and would sink on gale (strong wind)
Issue: Whether or not the captain had intention
to return
Held: Such intention to return, if it existed, does
not appear to have been very firmly
fixed/proven, considering the leisurely manner
in which the captain proceeded after he
reached the Port of Hongkong to seek
assistance – such that, (1) he did not make any
determined effort to arrange for the salvage
when he reached Hongkong, (2) he had over
two days in which to arrange for salvage
operations and he did nothing
Basis of the SC showing the captain's “no intent
to return” when he abandoned the vessel: The
acts of the captain after reaching the place
where he could get help to save the vessel,
coupled with the condition of the vessel when
abandoned by the captain (i.e., vessel was
partially submerged)
(c) Quasi-derelict (vessel temporarily abandoned
to seek help elsewhere - but left without
sufficient precaution to protect the vessel from
becoming shipwrecked and when the vessel was
temporarily abandoned, it was at
“considerable” peril of the sea) (Erlanger &
Galinger vs. New Zealand Insurance Co., GR No.
L-10051, March 9, 1916; citing The Boston, Case
no. 1673; Rowe vs.  The Brig, Case no. 12093; 1
Sir Lionel Jenkins, 89) by the libelants (salvors),
the possession they took of her was lawful. (The
Emulous, Case No. 4480)
30
The  animus revertendi et recuperandi  (intent to
return and recover) may thus far have
continued with the captain (i.e., there is intent
to return), BUT this mental hope (of recovering
the vessel) must be regarded inoperative and
unavailing in view of circumstances that
controvert/refute such mental hope of recovery
- BECAUSE: (1) Vessel was absolutely deserted
(abandoned) for 12 or 14 hours (left without
sufficient precaution) in a condition of instant
destruction in danger (“considerable” marine
peril), and the lives of those who should
attempt to remain by the vessel would be
considered in highest jeopardy. The vessel was
quite derelict (i.e., quasi-derelict)
Basis of the SC in considering the vessel is at
quasi-derelict: While the captain had intent to
return with hope of recovery, nevertheless this
hope is rendered hopeless in view of the vessel
when it was abandoned, was subjected to
"considerable marine peril" since no sufficient
precaution was made upon the vessel to
protect it from becoming a shipwreck
(d) Quasi-derelict (vessel temporarily abandoned
to seek help elsewhere - but left without
sufficient precaution to protect the vessel from
becoming shipwrecked and when the vessel was
temporarily abandoned, it was at
“considerable” peril of the sea) (Erlanger &
Galinger vs. New Zealand Insurance Co., GR No.
L-10051, March 9, 1916)
In  The Shawmut  (155 Fed. Rep., 476) the court
allowed salvage upon the following
circumstances: (1) The vessel (Myrtle
Tunnel)  was struck by a hurricane and tore the
sails away and carried off the deck load, and
was badly damaged and leaking, (2) the
captain requested towage from another vessel
(Steamship  Mae)  to the port of Charleston, but
on account of steamship Mae’s own damaged
condition, was unable to tow the vessel but
Steamship Mae took the captain and crews of
the  vessel at port of Charleston. The vessel
Shawmut  sighted the  vessel (Myrtle
Tunnel)  and, finding it to be abandoned and
waterlogged and no one aboard, vessel
Shawmut towed the vessel (Myrtle Tunnel)  and
brought it to the port of Charleston. The
shipowner of the  vessel (Myrtle
Tunnel)  contended that the vessel was not
derelict, because the captain had gone ashore
to procure assistance (i.e., animus revertendi
and recuperandi). With reference to this issue,
the court ruled:
Prima facie  a vessel (Myrtle Tunnel)
found at sea in a situation of peril, with
no one aboard, is a derelict; but where
the captain temporarily abandoned the
vessel for the purpose of obtaining
assistance, and with the intent to
return and resume possession (i.e.,
with hope of recovery), the vessel is
 therefore technically not a (legal)
derelict. (But) It is not of substantial
importance to decide that question
(whether or not the captain had
intention to return with hope pf
recovery) - INSTEAD: The vessel (Myrtle
Tunnel)  was what may be called a
quasi-derelict; abandoned left with no
sufficient precaution, her sails gone,
entirely without power in herself to
save herself from a situation though
not of imminent but of “considerable”
peril; lying about midway between the
Gulf Stream and the shore, and about
30 miles from either, an east wind
would have driven the vessel upon one,
and a west wind into the other, where
the vessel should have become a total
loss. Lying in the pathway of
commence, with nothing aboard to
indicate an intention to return and
resume possession, it was a highly
meritorious act upon the part of
the  Shawmut  to take possession of the
vessel and be awarded for salvage
6. Cases where vessel is not derelict
(a) Vessel is not quasi-derelict
If the captain abandoned the vessel to procure
assistance with intention to return, the vessel is
therefore not derelict (Erlanger & Galinger vs.
New Zealand Insurance Co., GR No. L-10051,
March 9, 1916; citing Abbott’s Law of Merchant
Ships and Seamen, 14th Edition, p.994)
But note: The vessel could be deemed as "quasi-
derelict" when though temporarily abandoned
with intent to return with hope of recovery,
nevertheless, the vessel was abandoned with no
sufficient precaution while subjected to
considerable peril of the sea in danger of
becoming a shipwreck
(b) Vessel is not quasi-derelict
The vessel is not subjected to "considerable"
peril of the sea. Although the vessel was
helpless due to engine failure. There was no
danger that the vessel would sink, in view of
the following: (1) smoothness of the sea and
the fairness of the weather, (2) was NO
MARINE PERIL which is shown by the fact that
said captain or its crew did not even find it
necessary to lower its launch and two motor
boats to evacuate its passengers aboard, and
neitherjettison the vessel's cargo as a safety
measure. These circumstances does even not
make the vessel a quasi-derelict (Barrios vs. Go
Thong and Co., GR No. L-17192, March 30,
1963)
Note: Marine peril is one of the requisites to
make vessel a derelict, absence of which, vessel
cannot be a derelict whether as legal or quasi-
derelict
31
7. Salvage and towage (distinguished; Barrios vs. Go
Thong and Co., GR No. L-17192, March 30, 1963; p.
195)
Facts: The weather is fine and the wave slight, but
MV Don Alfredo stalled in the sea due to engine
failure. The captain of the MV Henry approached
the captain of MV Don Alfredo who was on board
MV Don Alfredo, and offered towage, which MV
Don Alfredo agreed.
Issue No 1: Is the service of MV Henry salvaging?
Held: NO. MV Don Alfredo was not subjected to
marine peril as the weather was fair, the waves
smooth (Barrios vs. Go Thong and Co. [supra])
Issue No.2: What is then the nature of service of
MV Henry?
Held: Contract of towage.
Issue No. 3: What is then the difference between
salvaging and towage?
Held: The following:
(1) In salvage, there is salvage reward; while
towage, no salvage reward but there is towage
remuneration/compensation
(2) In salvage, the captain and crews are entitled
to salvage reward; while in towage, the
captain and crews of the towing vessel are not
entitled towage remuneration/compensation
but only the shipowner
HOWEVER: If the captain of vessel MV Henry vessel
offered to tow and the captain of MV Don Alfredo
agreed, but the vessel MV Don Alfredo was at
imminent peril at sea (i.e., derelict in real sense not
merely considerable peril at sea which is true in
“quasi-derelict”), then the vessel is a legal derelict -
HENCE: Salvage reward is proper
8. Presidential Decree 890 (February 9, 1976)
It is unlawful to engage in the business or
operation of salvaging vessels, wrecks, derelicts and
other hazards to navigation, or of salvaging cargoes
carried by sunken vessels, without first securing the
required salvage “permit” from Philippine Coast
Guard – OTHERWISE: Penalty of fine P100-P500 or
imprisonment from 30 days - 6 months, or both, at
the discretion of the Court.
Any watercraft, equipment, tolls, paraphernalia or
instruments used in the salvage of vessels, wrecks,
derelicts, and other hazards to navigation, as well
as the cargoes carried by the vessels which are
recovered in violation hereof - shall be impounded
and forfeited in favor of the government
Comments (Opinion): It is believed that PD 890
refers to person who intends to engage in the
business of salvaging operation considering that
a“permit” is required. This must be so on reason
that it is absurd for a vessel who while voyaging in
the middle of the sea, saw another vessel badly
damaged under imminent peril of sea, before
proceeding to salvaging, must first go to mainland
and secure permit from the Philippine Coast Guard
CHAPTER 7
PUBLIC SERVICE
 Public Utility (defined; Metropolitan Cebu Water
District vs. Adala, GR 168914, July 4, 2007; National
Power Corporation vs. Court of Appeals, GR 112702,
September 26, 1997 [p. 233])
A "public utility" is a business or service engaged in
regularly  supplying  the public with some commodity
or service that is of public consequence- such as
transportation, electricity, gas,  water, telephone or
telegraph services
 Limitation in the operation of “public utility”
1. Article 12 Section 11 of the Constitution
No franchise/certificate (of public
convenience)/any other form of authorization for
the “operation” of a public utility (e.g., common
carriers [e.g., public utility vehicles]) shall be
granted- except to Filipino citizens. However, in
case of corporations or associations created under
Philippine laws, at least 60% of the capital is owned
by Filipino citizens; x xx. X xx.(Note: If natural
person, must be Filipino; if juridical person, at least
60% of capital own by Filipino)
Note: Exception where even if not a public utility
but merely a public service, is specifically regulated
by the Constitution as to percentage of capital
ownership – is ownership over mass media (wire or
wireless [Bombo Radyo; ABS-CBN; GMA, etc.])
where it must be owned 100% Filipino whether by
natural or judicial person (Article 16 Sec 11
Constitution)
2. Can a foreigner or foreign corporationfully own
100% the “facilities” of public utility – without
complying with the 60% Filipino capital
requirements of the Constitution? (People vs.
Quasha, L-6055, June 12, 1953; Tatad vs. Sec.
Garcia, Gr. No. 114222, April 16, 1995)
YES. Article 12 Section 11 of the 1987 Constitution
refers to “operation” of the public utility which
requires franchise/certificate of public
convenience/permit/other form of authorization –
such that the Constitution does not refer to
ownership of the “facilities” or “equipments” that
are being use in the operation of public utility
Note: The right to operate public utility requires
prior franchise/certificate of public
convenience/permit – WHILE: Ownership of the
facilities/equipments use in the operation of public
utility refers to, for example, buses, trains,
airplanes, pipelines use by water district, electrical
posts and wires use by electric company, wires use
by telephone company and among other
facilities/equipments relevant to the operation of
the public utility
(a) Ownership of “facilities/equipments” and
ownership of “franchise” – distinguished (1-
United Transport Koalisyon vs. COMELEC, GR
206020, April 14, 2015)
When one owns rail tracks, train coaches, rail
stations, terminals and the power plant – these
are not public utilities, but these are
facilities/equipments. What makes these
facilities/equipments become a public utility, is
32
when they are now used to serve the public,
which now requires franchise/CPC/permit
Note: One can own facilities/equipment
without being a public utility that requires
franchise/CPC/permit, and conversely, one can
own the franchise/CPC/permit without
necessarily being the owner of the
facilities/equipments. What is to bear in mind is
that once these facilities/equipments are used
to serve the public, then, that’s the time they
become public utilities which now require prior
franchise/CPC/permit – but nonetheless, while
engage as public utility, the ownership of the
facilities/equipments and the ownership of the
franchise/CPC/permit can remain and still exist
independently and separately without violating
the Article 12 Section 11 of the 1987
Constitution – as long as insofar as individual is
concerned engaged in public utility, he must be
Filipino, and insofar as
corporation/association/partnerships are
concerned, at least 60% of the capital (i.e.,
facilities/equipment/others used in the
operation of public utility) must be owned by
Filipinos
 Nature/character of Public Utility – and its public
(government) regulation (Kilusang Mayo Uno Labor
Center vs. Hon. Jesus B. Garcia, Jr., GR 115381,
December 23, 1994; p. 233)
Public Utility is impressed with public
interestconsidering that its use is of public consequence
providing the service to public – as such, being of public
interest, the government can impose regulation
pursuant to its police power for the good and
protection of the public but only insofar as such
regulation relevant to the operation of the public utility
(hence, the requirement of franchise/CPC/permit, the
regulation as to the maintenance of the public utility,
the safety measures required in the operation of public
utility, and among other reasonable regulation)
Note: This government’s power to regulate does not
impair private ownership per se over the
facilities/equipments use in the operation of the public
utility, rather, it merely regulates juris private (private
right)particularly that of jus utendi (right to use/enjoy)
but as mentioned, only insofar as the regulation
relevant to the operation of public utility
 “Public utility” and “public service” – their
similarities and dissimilarities (JG Summit Holdings,
Inc. vs. Court of Appeals, GR 124293, September 24,
2003; p. 233)
(1) Similarities
Both (a) are supplying service or commodities to
the public, and (b) engaged in business that involves
public interest
(2) Dissimilarities
(a) Public utility
It regularly supplies service or commodities to
the public because it is necessary for the
maintenance of life and occupation of the
 public – such as service for transportation,
electricity, telephone or telegraph, or
commodities such as gas and water. The
operator of the public utility must render his
services to the public indiscriminately and
indefinitely without the right to refuse to
render the service on reason that the public has
the right to demand such service so long as the
latter can pay the service charges. Such service
could be to general public or certain portion of
the general public (i.e., limited clientele) so long
as the operator holds himself out to the public
ready to provide the service to the public
indiscriminately who are also ready to pay for
such service. The reason why, public utility is
equated with public use or use by the public,
and the service is not confined to privileged
individuals but open to the public indefinitely
and indiscriminately
Note: “certain portion of the public” - example:
Common carrier serving transport of passengers
not all people who wants to go anywhere else
(general public) but only from Enrile to
Tuguegarao and vice versa(portion of the
general public). Still, the common carrier is
public utility because it indiscriminately serves
all people(whether or not he be resident of
Enrile or Tuguegarao) as long as he wants to go
from Enrile to Tuguegarao and vice versa– so
that the operator having no right to refuse
carriage so long as the passenger pays
(b) Public service
(Unlike in public utility) The operator does not
regularly supplies service or commodities to
the public(general public or portion of the
general public) as such service/commodities are
not necessary for the maintenance of life and
occupation of the public – such as service for
transportation, electricity, telephone or
telegraph, or commodities such as gas and
water. The main reason why the operator in
public service has the right to refuse any
demand of any member of the public to render
his service – which is discussed in in particular
just below.
Another difference is that, while the operator
offers his services to the public (just like public
utility), nevertheless, (unlike in public utility) the
public has no right to demand the operator to
render such service on reason that the
operatorhas the right to refuse at his
discretion
Example of public service is a “shipyard” which
under C.A. 146 Section 13 (b) is a “public
service.”Being “public” service, the operator
offers his services to the public (just like public
utility), and in fact, the service of shipyard is
imbued with public interest (just like public
utility) as maintenance of seaworthiness of
vessel used to transport passengers and/or
goods. While the operator of shipyard offers his
services to the public, nevertheless, the public
33
has no right to demand such service as the
operator has the right to refuse at his
discretion (unlike in public utility)
Note: Thusly, a public utility is always a public
service – while a public utility is not always a public
service. Reason: Both are similar, and the apparent
difference is that in public the operator offers his
service to the public indiscriminately and
indefinitely without right to refuse, while in public
service the operator offers his service to the public
discriminately with right to refuse
(3) The importance of distinguishing public utility from
public service
(a) In public utility is subjected to percentage of
ownership of capital under the 1987
Constitution, also before one can operate
public utility both CPC and franchise are
required
(b) In public service, not subjected to percentage
of ownership of capital under the 1987
Constitution, also before one can operate
public service only CPC is required
(4) Who determines whether the business of supply
service or commodities to the public is public utility
of public service?
It is judiciary and not legislative.The legislature
cannot, by its mere declaration, make something a
public utility which is not in factas such – so that a
private business operated under private contracts
with selected customers and not devoted to public
use cannot, by legislative fiat or by order of a public
service commission, be declared a public utility -
since that would be unconstitutional on ground
violation of due process and likewise by taking
private property for public use without just
compensation(Note:Violation of due process and
taking of private property without just
compensation – on reason that once a business is
declared public utility, the jus utendi of the operator
would be rendered nugatory as he cannot engage
into such business without complying with the
capital percentage requirements under the 1987
Constitution and also, he cannot operate without
first procuring franchise)
 What are included under public service (CA 146
Section 13 [b] as amended by RA 2677)
“PUBLIC SERVICE” is defined, “includes every person
(natural or juridical) that own, operate, manage, or
control in the Philippines, a business offered to the
general or limited clientele for compensation (i.e.,
offered to the general public or limited portion of
the public),whether permanent, occasional or
accidental -
(a) common carrier(by land/water/air), railroad
(e.g., PNR, LRT, MRT), street railway, traction
railway, sub-way motor vehicle, either for
freight(goods) and/or passenger, with or
without fixed route and whatever may be its
classification
(b) freight or carrier service of any class
(c) express service
 (d) steamboat or steamship line, pontines, ferries,
and water craft - engaged in the transportation
of goods and/or passengers
(e) shipyard (place where ships are built or
repaired), marine railways, marine repair shop,
wharf or dock (structure along the sea/river
shore where ships are moored [anchored] to
load/unload cargoes)
(f) ice plant, ice-refrigeration plant
(g) canal irrigation system (e.g., NIA)
(h) gas, electric light/heat/power (e.g., NAPOCOR,
CAGELCO)
(i) water supply power (e.g., NAWASA, TWD)
(j) petroleum (e.g., Petron, Shell, etc.)
(k) sewerage system (e.g., where water waste
flows for sanitary purposes)
(l) wire or wireless communications system (e.g.,
PLDT, GLOBE, SMART, etc.)
(m) wire or wireless broadcasting stations(i.e., mass
media; e.g., ABS-CBN)
(n) and other similar public services
 Public Service Law (CA 146) - Jurisdiction, powers
and duties of Public Service Commission (PSC)
1. Section 13.The Commission (Public Service
Commission [PSC]) shall have jurisdiction,
supervision, and control over ALLPUBLIC SERVICES
and their franchises (i.e., franchise such that if the
public service is also a public utility; if it is public
service but not public utility then only CPC is
required), equipment, and other properties, and in
the exercise of its authority, it shall have the
necessary powers and the aid of the public force
(i.e., regulatory power and enforce its regulatory
power):PROVIDED, That public services owned or
operated by GOVERNMENT ENTITIES or GOCC shall
be regulated by the Commission (PSC) in the same
way as privately-owned public services, BUT
certificates of public convenience or franchise shall
not be required of such (government) entities or
GOCC: AND PROVIDED, FURTHER, That it (PSC) shall
have NO AUTHORITY to require STEAMBOATS,
MOTOR SHIPS AND STEAMSHIP LINES, whether
privately-owned, or owned or operated by any
Government controlled corporation or
instrumentality to obtain certificate of public
convenience or to prescribe their definite routes or
lines of service (i.e., because it is the MARINA
[Maritime Industry Authority] that has the power
and authority).
(a) The powers of Public Service Commission (now
LTFRB), and the preference of old operators of
public utility (Batangas Transportation Co. vs.
Orlanes, GR L-28865, December 19, 1928 [En
Banc]; p. 236)
FACTS:New applicant as common carrier
applying for franchise/CPC on a certain route –
when such route is already plied by old
operators having franchise/CPC
(1) Regulatory power of PSC:
(a) A common carrier being a public utility,
before operating business to transport
34
passengers and/or goods - must first
secure from PSC (now LTFRB) a
franchise (and also CPC) the purpose of
which, PSC has to regulate common
carriers to protect the safety/interest
of the riding public and avoid ruinous
competition among common carriers.
(b) The PSC also has the power to make
reasonable rules and regulations
relative to the operation of public utility
(e.g., common carriers regulated by
LTFRB), and failure to comply thereon,
the PSC can revoke the franchise
already granted
(c) The PSC also has the power to
specify/determine reasonable
compensation for the services rendered
by public utility (e.g., to increase or
decrease fares of passengers) –
PROVIDED: After public hearing and
investigation by PSC for that matter so
as to satisfy due process
(2) Old operator rule (to avoid ruinous
competition):PSC has the power to deny
grant of franchise to a new applicant for a
certain route when there is already
existing old operator (holder of franchise)
operating in the same route as that applied
for by the new applicant – and that such old
operator reasonably meets the volume of
the travelling public, andhe likewise
complies with the terms and conditions of
the franchise and the PSC rules and
regulations
(3) Old operator rule (in relation with
protectionof investment of old operator):
PSC has the power to deny grant of new
franchise to a new applicant for a certain
route even if there is a need to add/expand
common carriers as travelling public needs
increase – AND INSTEAD: The PSC will
require the old operator to add new
vehicles in such route applied for by new
applicant in order to reasonably meets the
volumes of travelling public – PROVIDED:
He complies with (a) the terms and
conditions of the franchise and (b) the PSC
rules and regulations
NOW, only when the old operator failed to
increase his vehicles, and does not comply
with (a) and (b), then, the PSC will grant the
franchise of the new applicant
Note:When public utility is operated by
government entity or GOCC,no CPC/franchise is
required (CA 146 Sec 13)
(b) Transfers of jurisdiction/power from PSC
(1) LTO – for the registration of all vehicles
whether common carrier or not
(2) LTFRB – for the grant of franchise/CPC
(pursuant to E.O. 202)
(3) Civil Aeronautics Board (CAB) – air
transportation services (pursuant to RA 776)
 (4) Municipality/City – public utility tricycle
operating within its territory (pursuant to
LGC)
2. Section 14. Public services that are exempted from
the provisions of Section 13 (as amended by R.A.
2021)
Hence, the following public services are not under
the jurisdiction, supervision and control of PSC:
(Note: Including issuance of franchise [read Section
15])
(a) Warehouse (i.e., storage building to store
goods for compensation);
(b) Vehicles drawn by animals, and bancas moved
by oar(peddle) or sail (large cloth used to catch
wind), and tugboats(small but powerful boats
used to pull/push ships along harbors/rivers)
and lighters (i.e., boat usually flat-bottomed
used to load/unload cargoes from and unto the
ship);
(c) Airships within the Philippines(i.e., domestic
commercial airplanes) - EXCEPT as regards the
fixing of their maximum rates on freight and
passengers (Note: The jurisdiction, supervision
and control of PSC including issuance of
franchise is already transferred from PSC to CAB
[RA 776])
(d) Radio companies- EXCEPT with respect to the
fixing of rates (e.g., rates on radio
advertisements);Note: Transfer of authority
from PSC to DOTC, then from DOTC to CICT
(Commission on Information and
Communication Technology), then from CICT
back to DOTC, then from DOTC to Office of the
President)
(e) Public services owned or operated by any
instrumentality of the National Government or
by any GOCC,EXCEPT with respect to the fixing
of rates
3. Section 15. With the exception of those public
services enumerated under Article 14, no public
service shall be allowed by PSC to operate in the
Philippines:
(a) Without possessing a valid and subsisting
certificate from the Public Service Commission
known as "certificate of public convenience
(CPC only)," or "certificate of public
convenience and necessity (this is actually CPC
plus Franchise for public utility)," as the case
may be – which CPC/CPCN will be granted
provided it will promote the public interests;
(b) The Commission (PSC) in the grant of CPC/CPCN
under (a), may prescribe as a condition for the
grant of CPC/CPCN that the Republic of the
Philippines or any instrumentality thereof can
acquire such public service (from private
individual) upon payment of the cost price of its
useful equipment, less reasonable
depreciation(i.e., Power of eminent domain
particularly “expropriation”)
In estimating the depreciation (less the cost
price to be paid by Government), the effect of
the use of the equipment, its actual condition,
35
the age of the model, or other circumstances
affecting its value in the market shall be taken
into consideration
Note: Violation of any of these conditions shall
produce the immediate cancellation of the
CPC/CPCN without the necessity of any express
action on the part of the PSC (i.e., cancellation of
CPC/CPCN ipso facto)
In addition to the foregoing enumerated conditions,
is the power of the PSC to:
(a) Extend/amend already issued CPC/CPCN
including those CPC/CPCN to be issued in the
future
(b) Modify itineraries(e.g., to modify approved
route of common carrier), time schedules of
public services (e.g., to modify trip schedules of
common carrier)
(c) Renew and/or increase of facilities/equipments
and properties (e.g., to require to
renew/change old common carriers, or increase
existing common carriers to meet the volume of
passengers)
4. Section 16. Proceedings of the Commission (PSC),
upon notice and hearing. - The Commission shall
have power, upon proper notice and hearing in
accordance with the rules and provisions of this Act,
subject to the limitations and exceptions mentioned
and saving provisions to the contrary:
(a) To issue CPC/CPCN which shall be known as
certificates of public convenience, authorizing
the operation of public service within the
Philippines whenever the Commission finds that
the operation of the public service proposed
and the authorization to do business will
promote the public interest in a proper and
suitable manner. PROVIDED, That thereafter,
CPC/CPCN will be granted only to Filipinos or of
the United States or to corporations (except
GOCC [no CPC/CPCN required]), co-
partnerships, associations or joint-stock
companies constituted and organized under the
laws of the Philippines PROVIDED, That 60% of
the stock or paid-up capital owned by Filipinos
or of the United States: PROVIDED, FURTHER,
That no CPC/CPCN shall be issued for a period
of more than fifty years
(b) To approve, subject to constitutional
limitations any franchise or privilege granted
under the provisions of Act 667, as amended by
Act 1022by any political subdivision (i.e., local
government) when, in the judgment of the
Commission, such franchise or privilege will
properly conserve (sustain) the public interests,
and the Commission shall in so approving
impose such conditions as to construction,
equipment, maintenance, service, or operation
as the public interests and convenience may
reasonably require, and(Commission) to issue
certificates of public convenience and necessity
when such is required or provided by any law
or franchise.
(c) To fix and determine individual or joint rates,
tolls, charges, classifications, or schedules
thereof (i.e., the public service),as well as
commutation (transportation ticket sold for a
number of trips over the given route), mileage
(i.e., transportation rate per mile), kilometrage
(i.e., transportation rate per kilometer), and
other special rates which shall be imposed
observed and followed thereafter by any public
service: PROVIDED, That the Commission may,
in its discretion, approve rates proposed by
public services provisionally (in the meantime)
and without necessity of any hearing; but it
shall call a hearing thereon within thirty days,
thereafter, upon publication and notice to the
concerns operating in the territory affected:
Provided, further, That in case the public service
equipment of an operator is used principally or
secondarily for the promotion of a private
business, the net profits of said private business
shall be considered in relation with the public
service of such operator for the purpose of
fixing the rates.
(d) To fix just and reasonable standards,
classifications, regulations, practices,
measurement, or service to be furnished,
imposed, observed, and followed thereafter by
any public service.
(e) To ascertain and fix adequate and serviceable
standards for the measurement of quantity
(e.g., P5 per cubic meter of water), quality (e.g.,
water quality provided by NAWASA), pressure
(e.g., water pressure by NAWASA), initial
voltage, or other condition pertaining to the
supply of the product or service rendered by
any public service, and to prescribe reasonable
regulations for the examination and test of
such product or service and for the
measurement thereof (i.e., of said product or
service).
(f) To establish reasonable rules, regulations,
instructions, specifications, and standards, to
secure the accuracy of all meters and
appliances for measurements (e.g., electric
meter, water meter, gasoline meter, etc.).
(g) To compel any public service to furnish safe,
adequate, and proper service as regards the
manner of furnishing the same as well as the
maintenance of the necessary material and
equipment (e.g., electric posts of CAGELCO).
(h) To require any public service to establish,
construct, maintain, and operate any
reasonable extension of its existing facilities,
where in the judgment of said Commission,
such extension is reasonable and practicable
and will furnish sufficient business to justify the
construction and maintenance of the same and
when the financial condition of the said public
service reasonably warrants the original
expenditure required in making and operating
such extension (viz., when the PSC requirement
36
for the extension of service creates some
reasonable profit to the public service).
(i) To direct any railroad, street railway or traction
company to establish and maintain at any
junction or point of connection or intersection
with any other line of said road or track, or with
any other line of any other railroad, street
railway or traction to promote, such just and
reasonable connection as shall be necessary to
promote the convenience of shippers of
property, or of passengers, and in like manner
direct any railroad, street railway, or traction
company engaged in carrying merchandise, to
construct, maintain and operate, upon
reasonable terms, a switch connection with any
private sidetrack which may be constructed by
any shipper to connect with the railroad, street
railway or traction company line where, in the
judgment of the Commission, such connection
is reasonable and practicable and can be out in
with safety and will furnish sufficient business
to justify the construction and maintenance of
the same.
(j) To authorize, in its discretion, any railroad,
street railway or traction company to lay its
tracks across the tracks of any other railroad,
street railway or traction company or across any
public highway.
(k) To direct any railroad or street railway company
to install such safety devices or about such
other reasonable measures as may in the
judgment of the Commission be necessary for
the protection of the public are passing grade
crossing of (1) public highways and railroads, (2)
public highways and streets railway, or (3)
railways and street railways.
(l) To fix and determine proper and adequate
rates of depreciation of the property of any
public service which will be observed in a
proper and adequate depreciation account to
be carried for the protection of stockholders,
bondholders or creditors in accordance with
such rules, regulations, and form of account as
the Commission may prescribe.
Said(depreciation) rates shall be sufficient to
provide the amounts required over and above
the expense of maintenance to keep such
property in a state of efficiency corresponding
to the progress of the industry. Each public
service shall conform its depreciation accounts
to the rates so determined and fixed, and shall
set aside the moneys so provided for out of its
earnings and carry the same in a depreciation
fund. The income from investments of money in
such fund shall likewise be carried in such fund
(e.g., interest income of depreciation funds
deposited in a bank, etc.). This(depreciation)
fund shall not be expended otherwise than for
depreciation, improvements, new
construction, extensions or conditions to the
properly of such public service.
(m) To amend, modify or revoke at any time
certificate (CPC) issued under the provisions of
this Act, whenever the facts and circumstances
on the strength of which (or in view of which)
said certificate was issued (by the PSC) have
been misrepresented (by the public service) or
materially changed.
(n) To suspend or revoke any certificate (CPC)
issued under the provisions of this Act
whenever the holder (public service) thereof
has violated or wilfully and contumaciously
refused to comply with any order, rule or
regulation of the Commission (PSC)or any
provision of this Act: PROVIDED, That the
Commission, for good cause, may prior to the
hearing, suspend for a period not to exceed
thirty days any certificate or the exercise of any
right or authority issued or granted under this
Act by order of the Commission, whenever such
step (suspension prior to hearing) shall in the
judgment of the Commission be necessary to
avoid serious and irreparable damage or
inconvenience to the public or to private
interests.
(o) To fix, determine, and regulate, as the
convenience of the state may require, a special
type for auto-busses, trucks, and motor trucks
to be hereafter constructed, purchased, and
operated by operators after the approval of this
Act; to fix and determine a special registration
fee for auto-buses, trucks, and motor trucks so
constructed, purchased and operated:
Provided, That said fees shall be smaller than
more those charged for auto-busses, trucks,
and motor trucks of types not made regulation
under the subsection.
 CPC and CPCN (franchise/permit)– distinguished
(1) CPC refers to the certification issued by
executive proper government agency (e.g.,
Public Service Commission, LTFRB, Civil
Aeronautics Board, etc.) certifying that the
operation of public service/public utility
promote public “convenience” so to say
public “interests” (i.e., certification that
such service/utility promotes public
“convenience”; Kilusang Mayo Uno Labor
Center vs. Hon. Jesus B. Garcia, Jr., GR
115381, December 23, 1994). In other
words, there is public “convenience” when
the public service/utility as proposed by the
applicant will give a reasonable need of the
“public”for such public service/utility (PAL
vs. Civil Aeronautics Board, GR 119528;
March 26, 1997)
(2) CPCN (Franchise/permit) is the privilege
granted by legislative (i.e., legislative
franchise whether delegated [e.g.,
LTFRB/Civil Aeronautics Board]/LGC as to
public utility tricycles, or direct legislative
franchise [franchise granted only to certain
individual]; e.g., to operate public utility)
37
Certificate of Public “Convenience” and
“Necessity” (franchise/permit to operate;
explained in the case of PAL vs. Civil
Aeronautics Board, GR 119528; March 26,
1997; p. 245)
The terms "convenience” and “necessity"
modify each other and must be construed
together – BUT: The “convenience” of the
public must not be circumscribed by the
word "necessity" in its strict meaning.
Hence, it is wrong to say in order to grant
CPCN (franchise/permit) “the applicant for
CPCN in his proposed public utility
convenience of the public must be of
necessity”. There is public “convenience”
when the proposed public utility will give a
reasonable need of the “public” for such
public utility, and there is necessity when
the proposed public utility will augment
the service of the existing public utility that
does not meet the present demand of the
public (minding the Old Operator Rule) – in
which case then, CPCN (franchise/permit)
will as a matter of due course, will be
granted/issued
Note: As in LTFRB/CAB/LGC, they issue
franchise as the law delegates to them to
power to issue franchise, and also the
executive power to issue CPC
 How the “LTFRB” determine the
existence/non-existence of public
“convenience and necessity” (franchise/permit;
Kilusang Mayo Uno Labor Center vs. Hon. Jesus
B. Garcia, Jr., GR 115381, December 23, 1994)
The existence or non-existence of public
convenience and necessity is a question of fact
that must be established by evidence, real
and/or testimonial; empirical data; statistics
and such other means necessary, in a public
hearing conducted for that purpose (i.e., public
hearing conducted by LTFRB before issuing CPC
[the reason why we see at the sided of common
carrier “Case No. x x x”]). The object and
purpose of such public hearing, among other
things, is to look out for, and protect, the
interests of both the public and the already
existing transport operators (i.e., existing
holders of CPC plying a route to which route the
new applicant is also applying for [i.e.,
cognizance of the Old operator rule]). The first
basic and primary requirement for the issuance
of CPCN (franchise) is the “convenience” of the
public needing such common carrier for their
transportation which the applicant for CPCN
(franchise) will provide, and secondly, is the
need for the augmentation of common carrier
in route applied for by the new applicant in
addition to the existing common carriers (old
operators) already plying that route. This
second requirement is the contentious one that
the old operators shall be heard in a public
 hearing before the LTFRB in order to give the
opportunity to oppose the application of the
new application for CPCN (franchise) in
recognizance of the “Old Operator Rule”.
 When can the government agency (Executive
Department) issue CPCN (franchise) to applicant for
public utility – even when said applicant does not
have a direct legislative grant of franchise
(Philippine Airlines, Inc. vs. Civil Aeronautics Board,
GR 119528, March 26, 1997, p. 246)
FACTS: Grand International Airways (GIA) is
applying for CPCN (franchise; as public utility) with
Civil Aeronautics Board (CAB), an so CAB
summoned/subpoenaed/notified all existing
domestic commercial airlines for a public hearing
before CAB regarding GIA’s application for CPCN,
and a public hearing is set by CAB on December 16,
1994.Before the public hearing, GIA requested the
CAB to issue Temporary Operating Permit (TOP;
i.e., to operate airline service even prior to the
issuance of CPCN), which request was granted by
CAB motu proprio (i.e., TPO granted even without
notice and hearing to all domestic commercial
airlines including PAL who may desire to contest
such issuance of TPO)
(1) ISSUE: Does CAB has the power to hear
application for CPCN (franchise), and after
public hearing, issue/grant CPCN – even if the
applicant for CPCN (GIA) does not have the
direct legislative franchise?
HELD: YES. It is true that franchise to operate
public utility is legislative in nature (i.e.,
franchise can only be granted exclusively by
Congress). However, there are two types of
legislative grant of franchise that the Congress
can do, i.e., direct legislative grant and
delegated legislative grant. In the former, the
franchise directly granted by the Congress
through law to a specific person [natural or
juridical]) for the operation of public utility –
WHILE: In the latter, Congress through law can
delegate such power to grant franchise to
government agency/instrumentality.In the case
at bar, the Congress through law (i.e., RA 776 –
Civil Aeronautics Act of the Philippines), has
delegated to CAB the power to grant franchise
to applicant for public utility regarding
commercial air transport (common carrier). This
being the case, CAB has the power to hear the
application for CPCN applied for by GIA, and
ultimately grant CPCN authorizing GIA to
operate air transport domestically in the
Philippines even without direct legislative
franchise granted to GIA as such power already
delegated by Congress to CAB (via RA 776 –
Civil Aeronautics Act of the Philippines)
(2) ISSUE: Does the CAB has the power to grant
Temporary Operating Permit (TOP) to GIA –
pending the application for CPCN (franchise) of
GIA?
38
HELD: YES. RA 776 expressly gives the CAB the
power to issue TOP motu propio– even before
the public hearing regarding GIA’s application
for franchise
 Determination as to when and as to who will be
granted CPC/CPCN – in case of controversy
between applicant and existing operators, or
among existing operators, in the same route
NOTE: The rules below apply to both PUBLIC
SERVICE and PUBLIC UTILITY
1. Prior applicant rule – as regards application for CPC
(public service) or CPCN (public utility)
When there are 2/more applicants for public service
(e.g., ice plant) or public utility (e.g., as common
carrier) over the same new territory (e.g., no ice
plant on the territory; no common carrier plying the
route) and 2/more applicants’ conditions/capacity
are equal – one who filed first for CPC(for public
service)/CPCN(for public utility) is primarily
considered (Batangas Trans Co vs. Orlanes, 52 Phil
455)
2. Old operator rule as regards application for CPC
(public service) or CPCN/Franchise(public utility)
There is a new applicant for CPC/Franchise for a
territory which territory already served by a sole
old operator (who is already a holder of
CPC/Franchise on such territory applied for by the
new applicant)
(a) If the old operator already meets the needs of
the public in such territory, then the new
applicant will be denied CPC/Franchise
(b) If the old operator does not meet the needs of
the public in such territory, then the old
operator will be given the opportunity within
period to increase his operation to meet the
public need in such territory (Javier vs. Orlanes,
GR 31310, September 5, 1929) – and this is
avoid ruinous competition.
NOW: If old operator does not increase his
operation despite the given period, then the
new applicant will be granted CPC/Franchise
(De Cruz vs. Marcelo, GR L-15301 and L-15302,
March 30, 1962 – citing Jose de la Rosa vs.
Pedro V. Corpus, 66 Phil. 8 and G.R. No. L-3622,
Interprovincial Autobus Company, Inc. vs.
Lubanton, 26 July 1951)
3. Third operator rule
There is a new applicant for CPC/Franchise for a
territory which territory already served by a 2/more
old operators (who are already holders of
CPC/Franchise on such territory applied for by the
new applicant)
(a) If the 2/more old operators already meet the
needs of the public in such territory, then the
new-3rdapplicant will be denied CPC/Franchise
(b) If the 2/more old operator do not meet the
needs of the public in such territory, then
“Protection of Investment Rule” comes in (i.e.,
the 2/more old operators will be given the
opportunity within period to increase their
operation to meet the public need)
 NOW: If 2/more old operatorsdo not increase
their operation despite the given period, then
the new-3rd applicant will be granted
CPC/Franchise(De Cruz vs. Marcelo, GR L-15301
and L-15302, March 30, 1962 – citing Jose de la
Rosa vs. Pedro V. Corpus, 66 Phil. 8 and G.R. No.
L-3622, Interprovincial Autobus Company, Inc.
vs. Lubanton, 26 July 1951)
Notes:
(1) In the “Protection of Investment Rule”, It is
a sound rule that 2/more old operators
must be protected in their investments - as
long as they are able to serve the public
need in such territory, any new-3rd applicant
will be denied CPC/Franchise – UNLESS: The
2/more old operators despite given the
chance/period to improve/increase their
operation but failed to do so(De Cruz vs.
Marcelo, GR L-15301 and L-15302, March
30, 1962 – citing Jose de la Rosa vs. Pedro
V. Corpus, 66 Phil. 8 and G.R. No. L-3622,
Interprovincial Autobus Company, Inc. vs.
Lubanton, 26 July 1951)
(2) The fact the new-3rd applicant only applies
for one trip a day is of no moment- since
the fact remains that the 2/more old
operators already meet the need of the
public(Yangco vs. Esteban, GR L-38586,
August 18, 1933)
 Commonality of “Old operator rule”, “Third
operator rule” and “Protection of investment rule”
Even if the operator/s are protected by such
mentioned three (3) rules, nevertheless, he/they
violate the terms and conditions of their
CPC/Franchise as regards the operation of public
service/public utility, and/or, violate the rules and
regulations of the government agency concerned as
regards the operation of public service/public utility
– THEN: The new applicant shall be granted
CPC/Franchise, and in fact, the CPC/Franchise of the
existing operator/s is in danger of being
cancelled/revoked(Rizal Light & Ice Co. vs. Public
Service Commission, GR L-20993, September 28,
1968)
 Application of “Prior applicant rule” (priority for
first applicant for new territory [route])
Litimco vs. La Mallorca, GR L-17041-42, May 18, 1962
(p. 249)
FACTS: First applicant applied franchise for new route
Manila-Malolos via Sta. Isabel. Following the
application of First applicant, this Second applicant
Operator who is already an old operator plying Manila-
Malolos via Guiguinto, also applied for franchise for the
same new route applied for by Litimco (i.e., Manila-
Malolos via Sta. Isabel) – so that Second applicant will
be removing some its buses from its original route
Manila-Malolos via Guiguinto in order to cater the new
route (i.e., Manila-Malolos via Sta. Isabel) applied for
by First Applicant. Both Frist Applicant and Second
applicant are financially capable and able to serve
39
public convenience for the new route Manila-Malolos
via Sta. Isabel.
(a) ISSUE No. 1:Who between First Applicant and
Second Operator be granted the CPC?
HELD: Frist Applicant. Reason: While Second
applicant is an old operator, he is as such only for
old route Manila-Malolos via Guiguinto and not for
the new route Manila-Malolos via Sta. Isabel –
hence, both the First applicant and the Second
applicant are deemed new applicants for a new
territory (route) Manila-Malolos via Sta. Isabel.
Now, applying “Prior applicant rule,” if there are
2/more applicants applying for franchise for a new
territory/route (in this case Manila-Malolos via Sta.
Isabel), and that their conditions are equal (i.e., in
this case at bar, both are financially capable and
able to serve public convenience for the new route),
then the one who first filed the application for
franchise shall be awarded (which in this case, the
First applicant)
(b) ISSUE No. 2: Second applicant invoked “Old
operator rule” because both will be plying
substantially same route Manila-Malolos so that
the only difference is the place to traverse in order
to reach back and forth Manila-Malolos (via
Guiguinto and via Sta. Isabel) which difference is
only a matter of seven (7) kilometres - hence, the
Second applicant must be preferred considering all
their conditions are equal. The question is, is the
Second applicant correct?
HELD: NO. Reason: Despite that that the new route
(i.e., via Sta. Isabel) covers only seven (7)
kilometers of old route (i.e., via Guiguinto) in going
to Manila-Malolos and vice versa, is of no moment.
That new territory/route is still a new
territory/route (i.e., via Sta. Isabel) and applying
the “First applicant rule,” the First applicant must
be preferred
 “Old operators” themselves are applying for
additional units(additional vehicles) for the same
territory/route they are presently
plying(Raymundo Transportation Co. vs. Cerda, GR
L-7880, May 18, 1956)
FACTS: The applicant is an old operator along with
other old operators plying the same route. The
applicant applied for additional franchise by
augmenting his present number of vehicles for the
same route, of which the other old operators opposed
on ground that the present number of vehicles plying
the same route are already sufficient to cater the
volume of passengers. Additional franchise was
granted (by say LTFRB) on ground that there are hours
of the day when transportation in said route are
insufficient because of the severe traffics at such hours
– which traffic caused many passenger vehicles to such
route already fully occupied to the prejudice of other
people who would like also to ride such passenger
vehicles
ISSUE: Is the granting of additional franchise to the
applicant-old operator proper?
HELD: YES. When there is insufficiency of passenger
vehicles in a certain route (whether caused by
insufficiency of passenger vehicles or heavy traffic), then
among old operators in the same route, the first one to
apply for increase of passenger vehicle/s should be
given preference for franchise. The old operators in the
same route should be vigilant in meeting the needs of
the travelling public
Note: The ratio decidendi applied here by the Supreme
Court is similar to “Prior applicant rule”
 Exceptions to “Old operator rule”(and “Protection
of Investment rule”)
1. When the old operator violates the terms and
conditions of his CPC/Franchise and/or violate the
rules and regulations of the government agency
concerned (Halili vs. Cruz, GR L-21061, Jun 27,
1968)
FACTS: New applicant filed application for franchise
for route Norzagaray all the way to Pier, Manila
(i.e., straight/unbroken trip). Old operator opposed
such application on ground of “Old operator rule”
and “Protection of investment rule”, averring that
he is already serving the route applied for by the
New applicant though he has two (2) sets of buses
but plying Norzagaray to Pier, Manila though of
broken trips (i.e., passengers must transfer from
Set1 bus to Set2 bus of the old operator)
ISSUE: Should franchise be granted to New
applicant?
HELD:YES. It is true that the under the “Old
operator rule” and “Protection of investment rule,”
the old operator must be given the
chance/opportunity to increase/improve/complete
his service to meet the public need/convenience so
as to protect his investment as against the new
applicant. However, the exceptions for disregarding
the “Old operator rule” and “Protection of
investment rule” is when the old operator violates
terms and conditions of the franchise and/or
violates the rules and regulations of the
government agency concerned regarding the
operation of the public service/public utility. In the
case at bar, the violation of the Old operator is that
the Old operator did not comply with the terms
and conditions of his franchise where provided
therein that he has to put certain number of
passenger vehicles in such route – instead, what he
did, he divided his buses into two (2) sets.
2. When there is “great demand” for public service or
public utility (Tiongson vs. Public Service
Commission, GR L-24701, December 16, 1970)
FACTS: New applicant granted CPC (public service)
to operate 20-ton ice-plant in Pagsanjan, Laguna –
and to sell ice in the following municipalities in
Laguna: Pagsanjan, Longos, Famy, Sta. Maria,
Magdalena, Majayjay, Lilio, Paete, Pakil, Pangil,
Siniloan, Cavinti, Nagcarlan, Rizal, Sta. Cruz,
Lumban, Pila and Victoria. The Old operator
previously operating ice-plant in Pagsanjan,
Laguna, however, at the time the New applicant
applied for CPC, the Old operator closed his ice-
40
plant in Pagsanjan, Laguna and transferred it in
San Pablo City, Laguna, and he is selling ice in the
following municipalities in Laguna: Calauan,
Alaminos, Paete, Pakil, Pangil, Siniloan, Cavinti,
Nagcarlan, Rizal, Sta. Cruz, Lumban, Pila and
Victoria. The Old operator invoked “Old operator
rule” and “Investment protection rule”
ISSUE: Is the grant of CPC to New applicant proper?
HELD: Yes. The invocation of the Old operator of the
“Old operator rule” and “Investment protection
rule” do not apply – on the following two separate
and independent reasons:
(a) FIRST: At the time the New applicant applied
for CPC to operate ice-plant in Pagsanjan,
Laguna, there is no ice-plant thereto adequately
serve the ice needs of the public in Pagsanjan
as the Old operator already removed his ice
plant in Pagsanjan. The “Old operator rule” and
“Investment protection rule” cannot take
precedence over public convenience in
Pagsanjan. The Old operator is not adequately
serving the public of their ice needs not only in
Pagsanjan (where the Old operator removed
his ice-plant where the New applicant took his
place and build ice-plant there), but also the
public nearby Pagsanjan such as towns of
Longos, Famy, Sta. Maria, Magdalena,
Majayjay, Lilio where the Old operator does
not service which towns Lanuza would cater
Personal observation: It seems that the
Supreme Court, though not specifically
mentioned, applied “First applicant rule”
considering the fact that the towns (among
others) to be served by the New applicant are
towns not served by the Old operator, i.e.,
towns of Pagsanjan, Longos, Famy, Sta. Maria,
Magdalena, Majayjay, Lilio. Hence, the legal
precept “First applicant rule” that when there
are applicants for public service/public utility in
a new territory, the CPC/franchise shall be
granted to the first applicant given the fact that
all the applicants are all in equal conditions
(e.g., equal in capability to serve the public). In
fact in the case at bar, at the time the New
applicant applied for CPC, there was no ice
plant serving the ice needs of the people of
Pagsanjan, Longos, Famy, Sta. Maria,
Magdalena, Majayjay, Lilio, hence, even “First
applicant rule” does not even technically apply
on obvious reason that it was only the New
applicant who applied for ice-plant for such
new territory
(b) SECOND: How about the public of Paete, Pakil,
Pangil, Siniloan, Cavinti, Nagcarlan, Rizal, Sta.
Cruz, Lumban, Pila and Victoria where the New
applicant would like to serve, and these
aforementioned towns are already being served
by the Old operator. So the question, isn’t it
that the Old operator pursuant to the “Old
operator rule” and the “Protection of
investment rule”, should be given the
opportunity/chance to increase his operation?
 HELD: The Old operator has been granted to
build ice plant at first 30 tons capacity, then
later granted for 40 tons capacity, then
ultimately to 70 tons capacity. And despite this
70-ton ice plant capacity, the public of the
nearby towns are still in need for more ice –
and this only proves that there is indeed a
“great demand” for ice for the towns of Paete,
Pakil, Pangil, Siniloan, Cavinti, Nagcarlan,
Rizal, Sta. Cruz, Lumban, Pila and Victoria that
justified the grant of CPC to the New applicant
notwithstanding the fact that both the New
applicant and the Old operator will be serving
ice to those mentioned common towns
 Local Government Unit
1. Municipality of Echague vs. Ballad, GR L-48671,
December 12, 1986
FACTS: Municipality of Echague (Municipality) is
presently operating ferry in its territory along
Cagayan River, or at its option, the Municipality can
also leased its ferry to the highest bidder and the
latter to operate said ferry. Later in time, Board of
Transportation (BOT assumed PSC of its power to
issue CPC on x xx, water, x x x) granted franchise to
Ballad to the same territory (same route) with that
the Municipality. Municipality protested that it was
never notified of the public hearing conducted by
BOT regarding the application for franchise by
Ballad, and also Ballad never procured favourable
resolution from municipal councillors. However, the
BOT averred that the Municipality is not entitled to
be notified of the public hearing on reason that the
Municipality is a de facto ferry boat operator since
it did not secure CPC from BOT before operating
ferry boat pursuant to PD 1 vesting power upon
BOT to regulate transportation services
ISSUE:Is the Municipality a de facto ferry boat
operator, or otherwise stated, should the
Municipality first secure CPC from BOT before
operating ferry boat?
HELD:NO. Revised Administrative Code (Sections
2318-2320)gives the Municipality the power to
operate or lease ferry service (also markets, etc.)
within its own territory and it prevails over PD 1 –
on reason that the Revised Administrative Code is
more specific over and above PD 1 (in fact Revised
Administrative Code is later than PD 1) and that it
need not first secure CPC from BOT before
operating ferry boat - however, the Municipality in
operating ferry boat is still under the supervision of
the BOT to safeguard the safety of the traveling
public(Section 13 Public Service Act [CA 146]). Now,
the moment the Municipality leased the operation
of the ferry service to private individual (highest
bidder), then the latter should secure CPC from the
BOT (Section 16 [b] Public Service Act [CA 146]).
2. Section 447 (a) (3) (vi) Local Government Code (for
the municipality); Section 458 (a) (3) (vi) Local
Government Code (for the city) – delegated power
from Congress to Municipality/City not only the
power to supervise operation of public utility
41
tricycles but also the power to grant franchise to
public utility tricycles
Subject to guidelines prescribed by DOTC, the
Municipality/City has the power to regulate the
operation of public utility TRICYCLES and grant
FRANCHISES for the operation thereof within the
territorial jurisdiction of the municipality/city (as the
case may be; this is delegation of legislative
franchise by Congress to the City/Municipality)
 The authority of DOTC
1. DOTC particularly LTO: Regulates the registration of
land vehicles and issuing of driver’s license (to
include registration of tricycles and the license to
drive of tricycle driver)
(a) As to registration to all motor vehicles
(including tricycles whether public utility or
private)
Section 5 of RA 4136 (Land Transportation and
Traffic Code): No motor vehicle (i.e., including
motorized tricycle) shall be used or operated on
or upon ANY PUBLIC HIGHWAY of the
Philippines unless the same is properly
registered for the current year
Opinion: It seems that the land motor vehicles
need not register the vehicle if it does not ply
public highway. This is the reason why we
cannot see LTO in the streets/roads not public
highway
2. DOTC particularly LTFRB: Regulates the operation
of land public utilities and grant franchise/CPC
(except public utility tricycles which belongs to
Municipality/City pursuant to LGC)
Question: Should tricycle operators procure CPC
from LTFRB?
Answer: NO: Section 447 (a) (3) (vi) LGC specifically
gives the Municipality/City the power to regulate
operation of tricycles (asides from power to issue
franchise to tricycle operators)
3. Authority of DOTC and Municipal/City – over public
utility tricycles(LTO vs. City of Butuan, GR 131512,
January 20, 2000)
The power of the City/Municipality under the LGC
to grant franchise to public utility tricycle does not
include the power of the LTO to require the
registration of the tricycle and to require the
driver’s license
Note: LTFRB issues franchise and CPC for all land
public utility land vehicles – except for public utility
tricycles. The City/Municipality the one issues MTOP
(i.e., Motorized Tricycle Operators Permit] - this is
franchise/CPC) to public utility tricycles
 E.O. 202 (Creating LTFRB)
1. Section 5: Powers and functions of LTFRB (upon
land public utility – except tricycle operators which
powers/functions belongs to Municipality/City
pursuant to LGC)
(a) Issue, amend, revise, suspend or cancel
Franchise or CPC
(b) Determine reasonable fares, rates and other
related charges
 (c) Issue preliminary or permanent
(prohibitory/mandatory) injunction
(d) LTFRB issued “Rules of Practice and Procedure
observed before the LTFRB” which governs
pleadings, practice and procedure before LTFRB in
all matters of hearing, investigation and
proceedings within the jurisdiction of LTFRB
 KABIT SYSTEM
1. “Kabit” System - explained
It is an arrangement between holder of
Franchise/CPC and owner of vehicle (without
franchise) - where the vehicle owner operates his
vehicle as public utility/common carrier using the
Franchise/CPC of the holder thereof. This contract
is void for being against public policy
2. Lita Enterprise vs. Intermediate Appellate court,
GR L-64693, April 27, 1984; p. 291
FACTS: Ocampo has five (5) cars. Ocampo
contracted with Lita Enterprises (holder of
Franchise for taxicabs) for Ocampo to use the
franchise of Lita Enterprise for the operation as
taxicab of said 5 cars – with consideration of P200
monthly rental per taxicab. Hence, to effectuate
such contract, the five (5) cars were registered with
LTO in the name of Lita Enterprise to make appear
that the 5 cars are owned by Lita Enterprise.
However, the possession and operation of the 5
cars as taxicabs are by Ocampo and not by Lita
Enterprise. Later, one of the 5 cars of Ocampo
collided with the motorcycle of Galvez (Galvez
died). Civil case was filed by heirs of Galvez against
Lita Enterprise (being the registered owner of the
car involved in the accident). Decision was rendered
against Lita Enterprise, and in executing/satisfying
the award, one of the 5 cars (really owned by
Ocampo) was levied and sold at public auction in
order to satisfy the damages in favor of the heirs of
Galvez
NOW: After the execution of the Decision, Ocampo
wanted to register the remaining 4 taxicabs in his
name with LTO, hence Ocampo requested Lita
Enterprise to surrender the OC/CR to him, but Lita
Enterprise refused. Ocampo filed civil case against
Lita Enterprise for “Reconveyance of Motor
Vehicles with Damages” (and concomitantly for the
registration of the remaining 4 cars into the name
of Ocampo)
ISSUE: Will the civil action filed by Ocampo against
Lita Enterprise prosper?
HELD: NO. The contract entered into between
Ocampo and Lita Enterprise is commonly known as
“Kabit System.” Remember that Franchise is a
special privilege granted to certain person, and
hence, being personal, not transferrable without
authority of the grantee (e.g., LTO-LTFRB). This
contract is void for being against public
policy(Article 1409 [1]: Contract contrary to law,
morals, good customs, public order or public policy
– is null and void). If both parties knowledgeably
and voluntarily entered into a contract that is
against public policy, the court will not aid either
42
party (in this case, Ocampo and Lita Enterprise) -
instead, under the principle of pari delicto (i.e.,
both parties agreed to void contract), the court will
leave the parties where it finds them and parties
to bear the consequences of their illegal contract
Note: The contract being null and void, it cannot be
cured by any means such as ratification or by
prescription – the reason of which, void contract by
legal contemplation, does not exists from the
beginning (i.e., void ab initio)
Question: In relation to the case of Lita Enterprise
vs. Intermediate Appellate Court (supra), what
happened now to the case of People vs. Quasha, L-
6055, June 12, 1953; Tatad vs. Sec. Garcia, Gr. No.
114222, April 16, 1995, where the Supreme Court
ruled that one may own the facilities and while the
franchise may be owned by another?
Opinion: In Lita Enterprise vs. IAC, what happened
there is that in their agreement, while LIta
Enterprise is the registered operator, nevertheless,
the possession and actual operation of the 5 cars
was with Ocampo – and this is “Kabit System”.
Hence, had the 5 cars been registered still in the
name of Ocampo and while the franchise in the
name of Lita Enterprise, the contract could not
have been void as against public policy for after all,
the franchise being personal is, still belongs to Lita
Enterprise – PROVIDED: The actual operation,
management, employees in the operation of the 5
cars are all belonging to Lita Enterprise say by way
of lease
Question: In case of liability to the public
(passengers of the 5 cars [culpa contractual] or
others [culpa aquiliana/quasi-delict]), who shall be
liable then, will it be Ocampo or Lita Enterprise?
Answer: It will be Ocampo being the registered
“registered owner” – but Ocampo has the right to
be reimbursed by Lita Enterprise, the latter being
the one responsible for the accident
 The “registered” owner (of private vehicle) or
“registered” operator (of public utility) is the one
liable for accidentto its passenger (culpa
contractual), to others (culpa aquiliana/quasi-delict)
- regardless of the existence of sale/lease of
vehicles made by “registered” owner/operator
prior to such accident
1. Registered owner, the one liable to the public even
if not the actual operator at the time of the
accident (MYC Agro-Industrial Corp. vs. Camerino,
GR L-57298, September 7, 1984; p. 294)
FACTS:MYC leased several of its delivery trucks (not
common carrier; all registered with MYC as owner)
to Jaguar Transportation Company. Later, one of
the leased trucks collided with passenger jeepney
(own by Silla) resulting to the death and injuries of
the passengers of the jeepney. Complaint for
damages was filed against MYC (being the
registered owner of the truck; via culpa contractual)
and the truck-driver (via quasi-delict). MYC admits
ownership over the truck, however, at the time of
the mishap, the truck was already leased to Jaguar
 and that the truck-driver is the employee of Jaguar
– so that MYC alleged that it has no control over the
leased truck because the operation thereof was
with Jaguar neither to truck-driver as he is under
the employ of Jaguar
ISSUE: Who between MYC and Jaguar liable to heirs
of deceased passenger and injured passengers?
HELD: MYC. MYC being the registered ownerof the
truck, and is liable solidarily with truck-driver –
regardless of sale/lease of the truck prior to the
vehicular mishap. Hence, within the contemplation
of the law and the public, MYC is the employer of
the truck-driver, and the Jaguar though actual
operator nevertheless deemed as “agent” of MYC
Note: MYC can recover reimbursement from
Jaguar(by way of independent civil action, 3 rd-party
complaint or cross-claim, as the case maybe)
2. Registered owner, the one liable to the publiceven
if not the actual owner at the time of the accident
(Y Transit Co., Inc. vs. NLRC, GR 88195-96, January
27, 1994; p. 297)
FACTS: Employees of Yujuico Transit Co. filed labor
case against the latter – the Employees won against
Yujuico Transit Company. Writ of execution was
issued levying 10 buses registered with Yujuico
Transit Co. Now, “Y” Transit Co., Inc. opposed the
execution on ground that it is the new owner of the
levied 10 buses. Before the labor case was filed with
NLRC, Yujuico Transit Co., Inc. transferred the
ownership of the buses to Jesus Yujuico, and during
the pendency of the labor case, Jesus Yujuico
transferred ownership over the buses to “Y” Transit
Co., Inc. which ownership continued until the
execution of the NLRC Decision. All these transfers
lacked prior approval of BOT (Board of
Transportation, now LTFRB) as required under
Section 20 of the Public Service Act – so that those
levied 10 buses were still registered in the name of
Yujuico Transit Co. (i.e., as registered owner in the
BOT) at the time the time the labor case was filed
by the employees of Yujuico Transit Company
ISSUE: Can “Y” Transit Co., Inc. oppose the
execution over levied 10 buses – on ground that it
was never a party to the labor case, and that the
levied 10 buses are already owned by it?
HELD: NO. The reason is simple, insofar as the
public is concerned (i.e., employees), Yujuico Transit
Co. being the registered owner, even if not the
actual owner of the 10 busesat the time of the
accident - – and that “Y” Transit Co. is a mere
“agent” of the Yujuico Transit Co. – whatever series
of transfers over the 10 buses that happened
Note: Corollary, the Supreme Court also ruled that
“Y” Transit can recover damages/reimbursement
from Yujuico Transit Company (in a separate civil
action) for the executed 10 buses that “Y” Transit
already owns before the execution of the NLRC
Decision
3. Same principle(B.A. Finance Corporation vs. Court
of Appeals, GR 98275, November 13, 1992; p. 301)
ISSUE:Is the registered owner liable for damages in
civil action to public – even if the truck was already
43
leased/sold to another at the time of the accident –
and the latter was also the actual operator of the
truck at the time of the accident?
HELD: YES. Insofar as public is concerned, the
registered owner (be it public utility or private
vehicle) is the owner of the vehicle, and as such,
liable for damages to the public (passengers and/or
third persons) – NOTWITHSTANDING: That the
vehicle is already transferred to another (actual
owner) by sale, lease, assignment or otherwise at
the time the mishap happened causing damage
HOWEVER: When the registered owner/operator is
made to pay for the damages in civil action, he has
the right to be indemnified by the actual owner
(and of course also against the driver) via
independent civil action, 3rd-party complaint or
cross-claim as the case maybe
 Registered owner, actual owner and driver – all
solidarily liable for damages in “Civil Action” filed
“against all of them” by the public (i.e., passengers
or 3rd-persons)
1. Jereos vs. Rodriguez, GR L-48747, September 30,
1982; p. 300
FACTS: Padorla (registered operator of jeepney
[holder of franchise]); Jereos (actual owner of
jeepney); Jaravilla (driver of jeepney under the
employ of Jereos). The registered operator and the
actual operator entered into “Kabit System”, i.e.,
the actual owner has no franchise to operate his
jeepney as public utility particularly as common
carrier, hence, the actual owner used the franchise
of the registered operator. Driver negligently hit
Judge Rodriguez and his Wife, the Judge died, while
the Wife injured. Wife and Children filed civil action
for damages against registered operator, actual
owner and the driver and the Court of Appeals held
them all solidarily liable. The actual operator
averred that he cannot be solidarily liable with the
registered operator and driver by invoking the civil
case of Vargas vs. Langcay (GR L-17459, September
29, 1962), where the Supreme Court held that in
that civil case, only the registered operator/owner
and the driver (of actual owner) were held
solidarily liable for damages (and the actual owner
was not)
ISSUE:Is Jereos correct in invoking the case of
Vargas vs. Langcay?
HELD: NO – it is misplaced. In the case of Vargas vs.
Langcay, the Supreme Court held:
Vargas is the registered owner and operator of
the jeepney, while Jose is the actual owner of
the jeepney (i.e., Jose bought the jeepney of
Vargas), and while Ramon is the driver of Jose
as regards the jeepney.Driver while driving the
jeepney, negligently hit a pedestrian Langcay,
which at the time,the registered ownerwas still
the registered owner and operator of the
jeepney. Langcay filed civil action against the
registered owner and the driver (Note: The
actual owner is not impleaded as one of the
defendants). When the civil action was
 appealed with the Court of Appeals, the later
ruled that the registered owner is subsidiarily
liable with the driver – applying Article 103
RPC: Article 103 RPC: Subsidiary civil liability of
other persons. — The subsidiary liability
established in the next preceding article shall
also apply to employers (i.e., in this case in the
eyes of the public, it is the registered owner), x
xx engaged in any kind of industry for felonies
committed by their x x x employees (i.e., the
driver convicted of reckless imp. Res. To physical
injuries) in the discharge of their duties.
When the case was appealed to the Supreme
Court, it was ruled that the Court of Appeals
erred in ruling that the registered owner is
subsidiarily liable with the driver by applying
Article 103 RPC. The Supreme Court ruled that
in many cases it decided, it remained
consistent that the registered owner and driver
are solidarily liable for damages whether to the
passenger (culpa contractual) or to third person
(quasi-delict). At the time of the accident, it is
immaterial whether the registered owner is
the actual owner of the vehicle in the same
vein that it also immaterial who is the actual
employer of the driver – on reason that in the
eyes of the law and public, the registered
owner is the actual owner of the vehicle and
the actual employer of the driver.
NOW, going back in the case at bar (Jereos vs.
Rodriguez), the Supreme Court ruled in Vargas vs.
Langcay that the registered owner and driver are
solidarily liable only to correct/rectify the error of
the Court of Appeals in ruling that by applying
Article 103 RPC, the registered owner is subsidiarily
liable with the driver. The Supreme Court in Vargas
vs. Langcay, did not rule that the actual owner is
exempt or not solidarily liable with the registered
owner and the driver(Reason: Why should the
Supreme Court in Vargas vs. Langcay hold the actual
owner solidarily liable with the registered owner
and driver when in the first place, the actual owner
was not made one of the defendants in the civil
case filed by the complainant and instead, the
complainant filed civil action only against the
registered owner and the driver - and in Vargas vs.
Langcay to hold the actual owner solidarily liable
with the registered owner and driver would be in
utter violence of due process of law – but again, in
no case, the Supreme Court in Vargas vs. Langcay
ruled that the actual owner is exempt or not
solidarily liable)
NOW, in the case at bar (Jereos vs. Rodriguez), the
Supreme Court at any rate ruled that considering
the registered owner is solidarily liable with actual
owner and driver, and in the event that it is the
registered owner that made to actually pay for the
damages, he has the right to be indemnified by the
actual owner and driver in the same civil action via
cross-claim or 3rd party complaint, in his option in a
separate civil action filed against the actual owner
and driver.
44
Personal observations:
(a) How about in MYC Agro-Industrial Corp. vs.
Camerino, GR L-57298, September 7, 1984
(supra), why the Supreme Court ruled that the
registered owner/operator and driver are
solidarily liable in a civil action?
Reason: Because the civil action is filed only
against the registered owner/operator and
driver (with the actual owner not included as
one of the defendants). A person not included
as defendant cannot be made liable in a civil
action on ground of due process
(b) Why is it that in the case of Vargas vs. Langcay,
GR L-17459, September 29, 1962 (supra),
Supreme Court ruled that the registered
owner/operator and driver are solidarily liable
in a civil action?
Reason: Because the civil action is filed only
against the registered owner/operator and
driver (with the actual owner not included as
one of the defendants). A person not included
as defendant cannot be made liable in a civil
action on ground of due process
2. BA Finance Corp. vs. Court of Appeals, GR 98275,
November 13, 1992 and Equitable Leasing Corp. vs.
Suyom, 388 SCRA 445 – same principles in the
above discussions
 Boundary System – defined/explained
It is an agreement whereby the driver (and
conductor) uses the public utility (common carrier
such as bus/jeepney/tricycle/calesa) belonging to
the owner/operator for number of hours, with the
gasoline for the account of the driver (and
conductor) - and from the fare collections of the
driver (and conductor), remits to the
owner/operator the agreed amount, and the excess
belonging to the driver (and conductor)
Their juridical relationship is that of “employer-
employee relationship” and not “lessor-lessee
relationship” (National Labor Union vs. Dinglasan,
98 Phil 649). Their relationship being “employer-
employee relationship”, therefore, the
owner/operator has the control and supervision
over the driver (and conductor) unlike under the
relationship of “lessor-lessee relationship” where
the lessor loses complete control over the thing
leased
And their relationship being under “employer-
employee relationship”, the following are the
consequences:
(a) In case of labor dispute between Driver (as
employee) and Operator (as employer), the
jurisdiction belongs to NLRC; and
(b) In case the driver negligently causes damage
to passenger/3rd-person (e.g., pedestrian or
another vehicle), then the owner/operator is
solidarily liable with the driver (Note: But of
course, the owner/operator can recover
indemnity from the driver)
45